Thursday, December 30, 2010


Here's some stats that makes BLT look favourable:
SP  2610p
PBV 1.85 (10-year median: 3.35, implying an 81% gain)
GG  53% - well capitalised
ROC 30% - high returns on capital
EY  21% - cheap price (EV adjusted)
MKT £57b
PE  14 - reasonable PE, with 2011F inc. of 50%, and 2012F inc. of 6%
YLD 2.1% - low yield, but not unsettling given other positive traits

The current level of the Footsie is 6010.69

On 01-Dec-2010, the director mr Nasser bought, on market, the equivalent of 40,000 shares (at about £25ps), for approx. £1m. On 08-Dec, for example, the company bought 350,000 of its own shares at c. £24.51 ps, for approx £8.5m. There are numerous other share buybacks occuring in November and December.

Monday, December 27, 2010

REL.L - a sell

I bought REL (Reed Elsevier) on 25-Oct-2010 at 559p. It's currently trading at 538p, and I think it's a sell. Although I'm only down 4%, and I haven't owned the shares for long, I still think they are a sell. There has been some directors buying on 1 and 14 Dec, I am still not convinced. It has a ROC of -98%, and an earnings yield of only 7%. Its problem is its high debt. Gearing stands at 241%, and its z-score is low. Its median earnings quality over the last decade is 0.0. It's a company that can't seem to report vanilla earnings.

This one is tricky. It is highly indebted, making its earnings yiled unattractive, but the directors are buying.

Sunday, December 19, 2010

Supermarket stats

         MRW   SBRY  TSCO
SP    264.60  372.1 433.3
MKT      7.0    6.9  34.8 in bn
PE      11.7   15.1  13.1
PE10    16.2   14.9  15.4 median PE over last 10 years
YLD      3.4    4.0   3.2
GEAR    16.8   34.1  51.7 gearing
TGR     16.8   35.2  72.6 tangible gearing
EGP1    12.7    5.0   5.0 earnings growth projected yr 1 out
EGP2    12.2    9.4  12.0 ditto yr 2
ROE     10.6    8.6  17.1
Z        3.4    2.9   2.2
PBV      1.3    1.3   1.2
PBV10    1.8    1.2   2.6 median PBV over last 10 years
GG      57.6   45.0  31.9 Graham Gearing %
PERF    40.7   21.8  32.6 Share price performance over 5 years 

Operating Margins %
      '06  '07  '08  '09  '10
MRW   0.9  3.1  4.5  4.6  5.9
SBRY  2.4  3.0  3.0  3.6  3.4
TSCO  5.6  5.5  5.5  5.5  5.6

Net Profit Margin %
      '06  '07  '08  '09  '10
MRW  -2.1  2.0  4.3  3.2  3.9  
SBRY  0.4  1.9  1.8  1.5  2.9
TSCO  4.0  4.4  4.5  4.0  4.1  

Data is at 19-Dec-2010

Thursday, December 16, 2010

AV.L Valuation

I did my own valuation of Aviva on a variety of bases:

[1] Current Price: 389.6

On a PER basis:
[2] EPS10: 54.55 (median EPS based on last 10 years)
[3] PE10: 9.15 (again, last 10 years median PER)
[4] Expected price [2]*[3]: 505p
[5] Expected return [4]/[1]: 30%

On a BV basis:
[6] PBV10: 1.53
[7] Current: 0.99
[8] Expected return [6]*[7]: 50%
[9] Expected price [8]/[1]: 584p

On yield basis:
[10] YLD10: 4.86%
[11] Current yield: 6.52%
[12] Expected return: 31%, SP 505p

Stephen Bland also did an exit price here : The index is presently on a forecast 2011 yield of around 3.3%, so that an exit yield for Aviva would be a forecast 4.3% on this reckoning. Taking the anticipated divi of 27.2p that makes a dump price of 633p which is 62% above today's figure of 390p.

So the returns are calculated as 30%, 50%, 30%, 62%; for an average of 43%, giving it a target price of 557p. Pretty good.

BARC.L Directors dealings

On 13-Dec-2010:
Barclays (BARC) Robert E Diamond Jr buys 363,179 shares @ 273.97p for £995,002

Wednesday, December 15, 2010

BBAY.L BlueBay Asset management

I bought BBAY.L on 14-Jun-2010 at 277p per share. At he time, I noticed that they were on a PE of 12, yield of 5%, a growth of 173% in EPS expected for the forthcoming year, and 31% for the subsequent year. It seemed quite an attractive opportunity.

Here's some notes I wrote:
28 jun 2010 update
greenblatt rank 937/2917: 32%
ev1 = 558 - 4 - 87 =467
ev2 = 4.31*107 = 461

rbit = 26
ey = 26/361 = 5% Poor
On forward:
ey = 57/461 = 12% better

ce = 17 + 87 = 105
roc = 26/104 = 25% very good

OL = (17+87)/100 = 1.04 very good

29 jun 2010 BBAY loses star fund manager

The price currently stands at 483.5p. Subsequent developments since my purchase is that it is being bought out. I still hold the shares, but they will be suspended on 16-Dec-2010, and I ought to get the money at the end of December, maybe early January. The takeover price is 485p. The shares have, therefore, been a very good buy for me. Analysts have said that the price paid is more than the estimated intrinsic real worth of the business.

BBAY has been my best return for the year. A considerable amount of luck was involved, as I had no idea that it would be taken over at a huge premium. The combination of huge yield, increasing projected earnings seem to have really helped it. It earned good ROC, and its ROA were through the roof. Note that the PE wasn't in the super-low valuations. A PER of 12 is somewhat undemanding, but not super-low.

Saturday, December 11, 2010

Cyclicals and defensive shares

Here's a very interesting quick experiment I just conducted. I wanted to compare an easily calculable Graham-like estimate of growth rate against a least squares regression fit. I also wanted to see if it was possible to "spot the cycles" based on least squares regression. The results I obtained were better than I expected - maybe suspiciously so.

One of Graham's test for a defensive stock is that it shows at least an improvement of 1/3 over 10 years. He suggests taking the average of the first 3 years and comparing it with the average of the last 3 years. I did my test a little differently, to hopefully smooth out some anomolies that may exist. I take the median of the first 3 years and compare it with the median of the last 3 years. You can go a little further than that, and actually work out a compounding rate - which is a little more human-sensible. In this case, you take the ratio of the numbers to the power of 1/7. Why 1/7? Well, if you assume the median of the first 3 years occurs on year 2, and similarly the median of the last 3 years occurs on year 9 (whether or not this actually happens), then the span is 7 years.

This number can then be compared with the compound rate obtained by using a computed rate on a least squares regression under an exponential model. I was quite impressed by how close the numbers were - usually within 1 or 2 percent, on occasions 3%.

Pulling some quck stats at random, RWD has a compound rate of 12% using both the Graham-esque method, and using the least squares fit. BLT had a rate of 32% using the model, and 33% using the Graham-esque model. There's very good agreement going on.

Using a least-squares fit lets you do one extra thing - it allows you to calculate R^2, the co-efficient of variation. This, in effect, allows you to see how much of the variation is "explained" by your model. Take AZN, for example, it has a compound rate of nearly 16%, and an R^2 of 0.94. This means that 94% of the EPS figures are "explained" by the model. Some companies have extremely high R2.

This is interesting, because it allows us to get a handle on defensive stocks versus cyclical stocks. A lot of the defensive stocks I did a quick scan of had rather high coeffs of variation. This is what you might expect: defensive stocks have steady and growing and "predictable" earnings.

I then looked at 2 cyclical stocks: BARC, and BWY. They had R2 values of 0.11 and 0.18. In other words, earnings were difficult to explain away by a growth model. This, too, is what you'd expect. Defensive models have slow predictable earnings, whilst cyclicals are prone to violent earnings swings.

Now, just because all this fancy maths says stuff, doesn't mean that the future will be like the past. In fact, most people will take it as a red flag that too much maths is being used.

However, it is suggestive. It helps you a little in cross-checking with a stock is a defensive stock, or a cyclical. For a defensive stock, what you want to look for is good growth rates, predictiable earnings, and you want to couple that with a good dividend, hopefully low PER, high ROE, and strong balance sheet. You try to get yourself a portfolio of about 10 of them in diversified sectors so as to smooth out any errors that you will invetably make. Note that in the case of defensives, high ROE is likely to correspond with high PBV. So low PER and high ROE are likely (but naturally not proven) to be good characteristics of defensive shares you want to own (along with the other factors I mentioned).

Now compare that with cyclicals, where you're more likely to look for low PBV and, paradoxically, high PER (and hence probably bad ROE). So how you characterise a company will have a profound impact on how you value it.

Defensive and cyclical is not the only categories that a company might fit in, of course. There are asset plays and turnarounds, too, and no doubt a few other that you can come up with. Companies might even fill an intermediate position between defensives and cyclicals. I'm not sure how you'd approach them, though.

If you use my scheme racket library, then you can compute growth rates and R2 (R-Squared) quite easily. Here's how I computed BATS.L:
(define (stats sym vals)
  (print sym)
  (print (exp-fit vals))

(stats 'bats  '(
           56.93    61.82    66.54    69.21    75.83    89.34    97.32    108.53    128.78    153.00
I obtained the results:
'bats'#hash((rate . 1.1130174848886074) (r2 . 0.9714435167133138))
This tells me that BATS is growing ar 11.3% pa, and the model "explains" 97.1% of the data. The data input is EPS, BTW.

Wednesday, December 8, 2010

DLAR.L buy

I bought some shares in troubled money print DLAR.L (De La Rue) at 846.6p (including commission).

DLAR had an approach for 905p cash, valuing the company at £896m (it has 99.0m shares in issue).  The bid was rejected, but I'm approaching this from an arbitrage kind of way. I'm saying that, at least, an informed outsider would be willing to pay c £900m for the company. IF a deal could be consummated at this level, I'd stand to make 6.9% profit. Possibly a higher amount would be offered, and there may be other bidders.

I get the impression that 905p is a bit lowball, so hopefully a better bid will emerge.

DLAR has a z-score of 3.11.

Thimbl-CLI: Added read command, climbl->thimbl

A note about some changes. At dk's request, I've changed the command climbl back to thimbl. I have also added a "read" command, which combines fetch and print.

Tuesday, December 7, 2010

BLT.L BHP Billiton

Having sold out of BLT.L some time ago, I suddenly decided I wanted back in.Why's that? Read on ...

On 01-Dec-2010, a director purchsed £903k worth of shares. That's a lot. They do not appear to be from the exercise of options. BLT's current ROE is 25%. It's median ROE over 10 years is 26.8%. BLT is a highly profitable company. Its ROA is 15.5% - again, highly profitable.

It's median PBV over 10 years is 3.43. Current PBV is 1.73 - implying a return of nearly double. BLT has a mkt cap of £53b, a z-scoew of 3.47, EGP1 58%, EGP2 4%, Yld 2.3%, PER 13.18. Its PER isn't, again, in bargain basement territory, but I think all the factors combined make it a small buy.


According to this notification, POL.L has a NAV of 6.86p per share. NAV is likely to be understated, too. Share price is 5.27p. Maybe it's possible to get a 30% return on investment (=6.86/5.27).

I first bought shares in POL.L at a price of  6.2672p, when the Footsie was at 5355. Mind, though, that I received a special dividend of 3p a share on that price, so the price I effectively paid was 3.2672p.

I also bought more shares on 18-Aug-2010 at 3.58p.See p 45 of my investment book.

Too bad I never bought more. I suspect a lot of value has been outted.

Thimbl-CLI: Added following and unfollow

In my recent github push, I renamed the command thimbl to climbl, which stands for "command-line thimbl". I wanted to reorganise my python modules, because I was having a tedious time getting the "thortune" cron job working. I'm still not sure if it's working, as cron has its own very tedious ideas about its environment. Someone really ought to invent a cron that Just Works (TM).

I also added two commands to Thimbl:
  • following - which prints out the people you are following
  • unfollow - which removes someone from the list of followings
Following is easy enough to use:
    climbl following

To use unfollow, you need to supply an address, as so:
   climbl unfollow


GRG.L - Greggs purchase

Yesterday, I made a purchase of Greggs, the retailer bakery. Here are some pertinant stats for it:
Share Price: 443.5p
Footsie: 5773.49
z 6.22
mkt cap £445.61
PER 12.45
Yld 3.9%
PBV 2.8
ROE 21.64%
ROA 12.9%
EGP1 4%
EGP2 7%
BSR (13741+33756)/34374 = 1.4

Greggs is reasonably-sized, and has earned about 20% ROE over the last decade. It's got a good yield, and its PER isn't extortionate. It's z-score is fantastic, and it has little debt (as evidenced by the BSR). I don't think this one is going to fly to the moon, but it seems a nice defensive stock.

Warren Buffett -- 50% Returns

From here :

Much attention has surrounded reports that Warren Buffett said he could generate 50% returms on small sums of money. Typically, three immediate questions arise:
Did he really say that? Did he really mean it? And, how would he (or me or my favorite money manager) do it?
Looking at the record of his comments, it's pretty clear that he said it (and repeated it) and he really means it.
Buffett seems to have got the set this ball rolling in 1999. At that year's BRK shareholder meeting, he was aked:
Shareholder: Recently, at Wharton, Mr. Buffett, you talked about the problems of compounding large sums of money. You were quoted in the local paper as saying that you're confident that if you were working with a small sum closer to $1 million, you could compounded at a 50% rate. For those of us not saddled with a $100 million problem, could you talk about what types of investments you'd be looking at and where in today's market, you think significant inefficiencies exist?

Buffett: I may have been very slightly misquoted, but I certainly said something to that effect. I talked about how I polled this group of 60 or so people I get together with every couple of years as to what rate they think they can compound money at if they were investing small sums: $100,000, $1million, $100 million, $1 billion, etc. And I pointed out how the return expectations of the members of this group go very rapidly down the slope.

But it's true. I could name half a dozen people that I think can compound $1 million at 50% per year -- at least they'd have that return expectation -- if they needed it. They'd have to give that $1 million their full attention. But they couldn't compound $100 million or $1 billion at anything remotely like that rate.

There are little tiny areas, as I said, in that Adam Smith interview a few years ago, where if you start with A and you go through and look at everything -- and look for small securities in your area of competence where you can understand the business and occasionally find little arbitrage situations or little wrinkles here and there in the market -- I think working with a very small sum, there is an opportunity to earn very high returns.

But that advantage disappears very rapidly as the money compounds. As the money goes from $1 million to $10 million, I'd say it would fall off dramatically in terms of the expected return -- because you find very, very small things you're almost certain to make high returns on. But you don't find very big things in that category today.
Later, similar comments by Buffett were reported in the June 25, 1999 Business Week:

"If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."
He has repeated similar statements in recent meetings with college students, and at the 2007 annual meeting, he hit the topic again:
If I were working with a very small sum – you should hope this doesn't happen – I'd be doing almost entirely different things than I do. Your universe expands – there are thousands of times as many options if you're investing $10,000 rather than $100 billion, other than buying entire businesses. You can earn very high returns with very small amounts of money. Everyone can't do it, but if you know what you're doing, you can do it. We cannot earn phenomenal returns putting $3, $4 or $ 5 billion in a stock. It won't work – it's not even close. If Charlie and I had $500,000 or $2 million to invest, we'd find little things we could do, not all of it in stocks.
This most interesting part of the statement is the emphasis on how different his activies and opportunities would be with smaller sums of capital and therefore more opportunities: "I'd be doing almost entirely different things than I do." Not sitting on Coke, the Washington Post, AXP. Not committing new money in the past few years to BUD, WMT and JNJ.
What then would he do? Well, he's hit this theme a few times also. At the 1998 shareholder meeting he said:
There are little tiny areas, as I said, in that Adam Smith interview a few years ago, where if you start with A and you go through and look at everything -- and look for small securities in your area of competence where you can understand the business and occasionally find little arbitrage situations or little wrinkles here and there in the market -- I think working with a very small sum, there is an opportunity to earn very high returns.
What was the Adam Smith interview? It aired in October 1993, and it went like this:
Adam Smith: If a younger Warren Buffett were coming into the investment field today, what areas would you tell him to point himself in?

Warren Buffett: Well, if he were doing – if he were coming in and working with small sums of capital I’d tell him to do exactly what I did 40-odd years ago, which is to learn about every company in the United States that has publicly traded securities and that bank of knowledge will do him or her terrific good over time.

Smith: But there’s 27,000 public companies.

Buffett: Well, start with the A’s.
As he explained at the 2001 shareholder meeting:
When I started, I went through the manuals page by page. I went through 20,000 pages in the Moody’s industrial, transportation, banks and finance manuals -- twice. I actually looked at every business -- although I didn’t look very hard at some.
He told Columbia business students in 2006:
Reading has made him rich over time. He told the story of going through Moody’s annuals in 1951. “It was absolutely a question of turning pages”. On page 1433, he found Western Insurance Securities. Its earnings per share were as follows: 1949 -$21.66, 1950 - $29.09. In 1951, the low-high share price was $3 - $13. He went to a broker and read the Best’s Insurance manuals, and talked to agents – it was a perfectly fine company with nothing wrong. Ten pages later, on page 1443, he found National American Fire Insurance (“This book really got hot towards the end!”) NAFI was controlled by an Omaha guy, one of the richest men in the country, who owned many of the best run insurance companies in the country. He stashed the crown jewels of his insurance holdings in NAFI. In 1950, it earned $29.02. The share price was $27. Book value was $135. Buffett found it fascinating that this company was located several blocks from the broker where he worked. His fellow brokers were bright, rational people whose job it was to buy cheap securities, and they refused to buy NAFI, instead investing in “blue chips”.
He then took out a copy of the 2005 Korean Stock Market guide. It was more of an almanac than a brokerage report. It was sent to him for free by a broker. “If it had been $10, I wouldn’t have paid for it.” Based on the recommendation of a friend who thought South Korean stocks were cheap, Buffett spent 5-6 hours leafing through the pages and put together a $100m portfolio of 20 or so companies. Daehan Flour sold 25% of the flour in South Korea, which had a large and stable economy. It’s earnings over the last few years: 12,870 won, 18,000 won, 22,830 won. It had over 100,000 won in securities. The stock price was 38,000 won. “You have to make money buying stocks like this at 2x earnings. Brokers aren’t going to tell you about Daehan Flour.”

All this corresponds nicely with Charlie Munger's recent comments to the graduating class of USC law school:
Another thing you have to do, of course, is to have a lot of assiduity. I like that word because it means: sit down on your ass until you do it.

Monday, December 6, 2010

BARC.L and BWY.L - share price evaluation

Here's my post on TMF about my analysis of BARC.L and BWY.L:
Over on the value board some time ago, I read a suggestion that cyclicals might be considered cheap if they sell at a discount to their 10-year earning average. I don't recall what multiplier was suggested.

Here's an interesting buy indicator that I found over at
"My ‘ideal’ opportunity is typically a cyclical stock that’s down more than 80% from its high, which is trading on four times peak earnings and where there’s some director buying. My best stock picks have typically come from this category."

I thought I'd apply it to two sectors: banks and builders. I'll just take one example from each, and see how they fare. I'm not going to worry about directors dealings ...

Let's take the bank BARC (Barclays). It's peak adjusted earnings according to SH (Sharelock Holmes) was 66.25p, which occurred in 2007. That gives a buy price of 265p. Their high was 790p in early 2007, giving it a buy price of c 160p on that basis. It's low was in early 2009, when its price was 51.2p. Boy was that a bargain ... in hindsight, of course. BARC is currently on 263p - below the peak earnings suggested price, but way above the 80% from peak share price. Another metric that's interesting, I think, is PBV. Currently, BARC is on a PBV of 0.65. The median PBV of BARC over the last 10 years was 1.9. On a PBV basis, BARC could rise nearly 3-fold (=1.9/0.65) if it returned to its median. So, I guess it depends if you think 263p is good enough, or you want to hold out for 160p.

Now let's look at housebuilder BWY (Bellway). It's peak EPS over the last decade was 144.5, which was in 2007. On a PER of 4, this would give a buy price of 578p. BWY currently trades as 558p. Its peak share price was 1279p (I'm getting that by looking at Google finance) in May 2006 (looks like investors were predicting a downturn, even then). Lopping off 80% of that gives a share price target of 255p. As it turns out, the shares never dipped that low. It's lowest point was 420.25, which occurred in the latter half of 2006. The 80% test is clearly quite a difficult criteria to meet. BWY's PBV is currently 0.65. It's median PBV over the last 10 years is 1.2 - suggesting it may have the potential to double in price.

Interesting stuff, n'est pas?

I have some notes on BARC.L in my black book on pages 6, 16, 35.

Investing in cyclicals

Very interesting quote here :
My ‘ideal’ opportunity is typically a cyclical stock that’s down more than 80% from its high, which is trading on four times peak earnings and where there’s some director buying. My best stock picks have typically come from this category.

Saturday, December 4, 2010

Thimbl TIP: automatic fortune

Thimbl-CLI now has a commit that allows you to create a message by reading from stdin. The command is, rather predictably, 'stdin'.

Here's how you might use it to post a random quote-of-the-day automatically. You will need the UNIX program 'fortune' installed.

Create a file: ~/thortune:

   fortune | python /path/to/ stdin

Set its executable permissions:
   chmod a+x ~/thortune

Edit your crontab file to include the line:
   @daily $HOME/thortune
That should be it!

Friday, December 3, 2010

Advent calendar code

I read recently that there was an advent calendar written for perl programmers, and I thought that would be a great thing to have for Thimbl. I found that my command-line utils weren't very easy to use for posts spanning mutliple lines. Thimbl needed a method to post a file. So I added one, and made it available at the repo.

Now, each day, I edit a text file called advent.txt, containing the graphics I want to display. I have a little python script called which reads the file, and posts it. Here's my script:

import sys
import thimbl
d = thimbl.Data()
Very simple.