Sunday, February 26, 2012


Google's Blogger is giving me bother. My blogging fun is continued here ... MY NEW WORDPRESS BLOG

Saturday, February 25, 2012

Change from blogger

I've decided to change, at least for awhile, from using Google's Blogspot to Wordpress. I am becoming more interesting in Linux, and have found that Blogspot was rather finicky with privoxy, my web proxy. BTW, I highly recommend using privoxy to filter out a lot of the garbage that is pumped onto web pages. It looks as though Privoxy is blocking some crucial aspect of the way that Blogspot works. So it's a case that either Blogspot goes, or Privoxy goes. Importantly, Wordpress has a search facility. So there now doesn't seem much of a reason for me to stick with Blogspot. Even better, I can author posts in "Blogilo" - a neat little offline tool for KDE, and perform an upload from that. It's not looking good for Google. Google: Wordpress:

Thursday, February 23, 2012

Mr Market smells a rat

There is an interesting comment on Paulypilot's pub regarding EROS (Eros International) - a worldwide distributor of Indian films.It was entered as part of the NFSC competition. Earnings are expected to grow at double-digit rates over the next couple of years, and it trades on a PER of only 7.

CantEatValue responds as follows:
The story looks good, the profits look good and the potential looks even better.
 There's a "but":
I'm now going to argue that not everything is as rosy as it currently seems. ... If the accounting were to be more conservative and they expensed all this asset build up directly they'd have made no profit at all. ... the huge capex spends haven't even been all that successful in producing growth even with the generous accounting, with return on equity having dropped every year in the last five.
He elaborates, but you already get the idea where this going.

It seems to all fit a general pattern, too, along with the likes of GNG (Geong International), RCG (RCG Holdings), ACHL (Asian Citrus Holdings) and my new entrant, PTEC (Playtech).

What I notice is: less than a decade listing, it's India, increasing number of shares in issue (although EROS doesn't seem too bad), decreasing ROE, and low PER.

It's very interesting, isn't it, that EROS is on a PER of 7.2 with forecast earnings growth in double-digits. Why so low? It has a market cap of £272m, so it's hardly off everyone's radar. The more I look at blogs, read ADVFN (I'm not get paid to mention them, BTW), and Twitter, the more I doubt that there's such a thing as a company that's under the radar, anyway.

Mr Market is giving a clear signal that he doesn't like this one. I know we're not supposed to take investment advice from Mr Market, but still, I think he smells something fishy.

I think I know how this works, too: people see the growth and value characteristics, buy, become disappointed, and leave. The company "eats up" its pool of potential investors, leaving the share languishing.

It's also interesting to take a look at major shareholders. ACHL is a £443m company. It has as major shareholders Market Ahead Investments Ltd, Sunshine Hero Ltd, Wellington Management Comany LLP. Never heard of them. Now compare them with a company like CWK (Cranswick), which makes Jamie Oliver sausages, amongst other things. Alas, it doesn't actually use Jamie Oliver as one of its ingredients; that's just clever marketing. CWK has a market cap of £388m - a bit less than ACHL - and counts amongst its major shareholders Amvescap, Legal & General, Jupiter Asset Management.

See the difference? One has a list of major shareholders none of whom anyone as heard of, whilst the other, smaller, company is owned by a clutch of well-known insitutions. Makes you think, right?

Look at what the brokers say. EROS has 3 analysts, and all 3 rate it a "strong buy". CWK has 5 analysts, 1 of which has a strong buy (presumably the house broker), and 4 have a neutral. So why aren't the institutions investing in the larger, "better" company? My answer is: because the the institutions know that EROS is junk, whereas CWK has merit.

I'll tell you this straight ... if you were to offer £1000 of shares in any company that I have talked about in this post, with the proviso that I couldn't sell for 5 years, I would choose CWK. And by the way, CWK is trading on the biggest multiple.

Wednesday, February 22, 2012


Stockopedia has a recent article entitled "7 Ways to Find Stock Ideas". At the bottom, they suggested using a watchlist. This is something that I have started recently wrt to my defensive portfolio. I believe that this idea has much more merit than is generally recognised. No-one missed what happened with Tesco, of course, but there are plenty of other companies that you hold, or would like to hold, where the usual Brownian motion (not a reference to a certain self-proclaimed world-saving ex-chancellor and Prime Minister) of the  share price pushes it too low, or too high. 

I'm developing my own bit of software that looks at price levels of a company I am interested, and flags up the cheap and the expensive. I'm also starting to use ADVN a lot more. They have an excellent price alerts page. If a company looks interesting to you, then why not set a price that you are interested in buying. I have 24 entries in my list - although some of them are sales, and some for testing purposes. Here's a sample of my buy prices: DNO (Domino Printing Sciences) at 440p, OPTS (Optos) at 160p, RR. (Rolls Royce) at 670p, TSCO (yes, that again) at 260p, VOD (Vodafone) at 148p.

Now, some of these numbers look a little unrealistic; but you never know. I think TSCO will prove to be too resilient to fall as far as 260p. I already have some TSCO, so there's little point in me setting a price near comparable levels. If I am to top up, then I want it to be in the absurd price range. VOD is at 173p, and its share price tends to trade in a narrow range. So setting a price of 148p looks like a stretch. On the other hand, its 52-week low was 156p.

I think that a watchlist also adds another important dimension: maintaining discipline. It is too easy to become carried away with one's own ideas, and rush to invest. A watchlist helps maintain an air of detachment.

Tuesday, February 21, 2012

Top of the Pops

Oh, that's neat.

My defensive portfolio over on Stockopedia has actually made it to a year. The thing that makes me really proud is that it's the top-performing fund over the year. It returned 13.28%, against the FTSE350 of -2.41%. A nice little outperformance. AFAIK, spreads and dealing fees are factored into the performance - although I have no control over how that is calculated. No share has been sold at a loss.

I only wish my real-life portfolio performed that well.

In the portfolio, I recently sold off BATS (Brit Amer Tobacco), which is towards the high end of its valuation. In real-life I still hold it.

Looking at the portfolio, I think the selection of MKS (Marks & Spencers) was a mistake. It has not been a huge mistake performance-wise, but on reflection it doesn't quite fit the criteria I was looking for in the portfolio. It is currently so cheap that I am reluctant to eject it from the portfolio.

One thing I do observe is that there have been no really bad calls (again, unlike in real life). Sure, there are some that are down. AZN (Astrazeneca), the worst performing share, is down 6.4%. I don't call that a disaster, though.

The portfolio has 12 companies in it, although there's about 3 that are quite small. I would like to aim for about 10 companies, of roughly equal weighting. At the moment, nearly 10% of the portfolio is in cash, due to the recent sale of BATS. I haven't figured out a good replacement yet.

Most of the companies fall in the "acceptable valuation" range. None I consider daftly overvalued. Astrazeneca, Reckitt Benckiser, Morrisons and Smith & Nephew are at the low end of their historic valuations (which I define to be less than the 20th percentile of their decade PE) . Marks & Spencer is edging towards its low region of valuation. So actually, I'm encouraged that the portfolio hasn't "run out of puff".

I would like to make some general observations. The first is that the companies weren't selected on a "cheap as chips" basis. AZN does have an amazingly cheap valuation of PER 6.35, but BSY is on a PER of 15.05. Last year, HLMA (Halma) reached a valuation which was too high, and I should have been more alert and sold it. The valuation level has come back down, so I missed a trick there. I hope that I have learned my lesson. Hence my reason for ejecting BATS from the portfolio. Another observation, mentioned above, is that the portfolio has had no disasters. It seems to have followed Buffett's dictum that you don't have to do many things right, just as long as you don't do many things wrong. Just look for good solid companies at reasonable (they don't have to be fantastically cheap) prices, and you'll do OK.

I don't think my method for finding safe companies is fool-proof. I could well imaging that I might have short-listed HSV (Homeserve). It has had over a decade of high ROE and increasing revenues, but it has been under investigation by the FSA (Financial Services Authority). It is on a PER of 8.35. This is a company that I'll keep away from. Too risky. It might, of course, make a strong rebound, and it looks like a Greenblatt Magic Formula company. I've seen enough of these companies where the magic died that I wont be adding it to the portfolio. 

In this portfolio, slow and steady is definitely winning the race.

And yet, of course, whilst I'm busy congratulating myself on a job well done, it's much harder to really know how much of it was luck, how much was judgement, and how much of it was market dynamics. Was it luck, for example, that kept me from noticing HSV and including it in the portfolio? And didn't I just benefit from the general "risk off" attitude of the market? My shares in Pace, for example, which wasn't in the portfolio, have had a torrid time last year. No-one could have really predicted the travails that Pace had encountered. Also, some of the shares that I have liked a lot have had a bad performance last year. Shares like AFF (Afferro Mining) - admittedly a riskier mining play (of all things) - but when you look at the cash position, and its resources (which are being counted for nothing), I think it is a good selection. It was taken down by the general market. There's nothing I can do about that. YTD (year to date), it's up 35%. The market has suddenly decided that it likes miners again. Another share that I like - SHG (Shanta Gold) - is up a monster 61% YTD. I still don't think it's anywhere near its true value.  Yet in 2011 it was all over the place, by which I mean "mostly down".

Sometimes Mr Market gets it wrong, and sometimes you get it wrong. And it's often difficult to decide which one of you is wrong. The recent suspension of CPP has been another humbling lesson in why I'm not as smart as I like to think. Fortunately, CPP was not a huge part of my portfolio. But it was definitely a drag on performance. Something that I would have preferred to avoid.

I think there is a general kind of lesson here that keeping a steady ship is likely to be the better course of action; with the proviso that you can go against Mr Market if you're pretty sure you're right. I would say that, in general market panics, where everything is being marked down, that is usually the better time to buy. i think you cna get a "sense" that the market is just throwing itself off a cliff. If there are company-specific problems, then that requires special caution. With something like HSV, discussed above, you're doing a high-wire act. It's very impressive if you can pull it off, but there's going to be a lot of mopping up to do if the situation deteriorates. Unless you know for sure, you're taking chances.

Operating Profit Margin deciles

I've dug through Sharelock, and obtained operating profit margins for companies having a market cap of at least £200m.

Here are the deciles:
P0   -235.43
P10     3.50
P20     6.22
P30     8.37
P40    10.86
P50    14.22
P60    18.11
P70    21.54
P80    30.43
P90    49.24
P100  109.40

I have excluded companies that do not have OPMs. These are mostly financials.

Monday, February 20, 2012

CPP - shares suspended

CPPGroup Plc (CPP) is an international company engaged in Life Assistance business with operations in 15 geographical markets in both developed and developing countries. CPP has launched range of products, which include card protection, mobile phone insurance, legal assistance and identity theft protection. CPP is also engaged in the provision of Packaged Accounts where it sources products and services to create a tailored package for bank account customers. CPP also provides a range of travel support services, such as translation and lost-and-found luggage services, as well as access to airport lounges worldwide. Its joint venture with Mapfre Asistencia provides assistance for plumbing, drainage, gas, electrical and other home-related emergencies.
Today it announced that trading in shares will be suspended:
follows communications from the FSA over the weekend concerning its investigation into certain issues surrounding the sale of the Group's Card Protection and Identity Protection products in the UK. The FSA has requested CPP to undertake a review of certain past business sales and to make certain changes to its renewals process. The request comes as a result of the FSA's findings into CPP's sales practices.
Needless to say, I deeply regret buying this dog. I shouldn't have let it's good returns on equity and cheap price influence the fact that, at base, the company provides a pretty skuzzy product. I ignored Buffett's first rule: don't lose money. You don't have to do many things right, just so long as you don't do many things wrong. Sigh. I live and learn. Hopefully.

Sunday, February 19, 2012

Mind the gap

I'm reading about gap analysis from an article on StockCharts.

Common Gaps

aka trading gap or area gap. Usually uneventful, e.g. going ex-dividend. Unlikely to produce trading opportunities.

Breakaway gaps

"The exciting ones". They occur when the price action is breaking out of their trading range or "congestion area". A congestion area is a ranged sideways movement over a few weeks or more. Breakaway gaps from this range have high volume. The change in the trend has a good chance of continuing. Don't assume that the gap will be filled - it might take a long time.

Runaway gap

aka measuring gaps. High volume. They are gaps that are caused by increased interest in the stock. The confirm that a trend will continue.

Exhaustion gaps

These appear near the end of a trend. High volume. They often indicate the end of a trend. A reversal can occur. The can easily be mistaken for runaway gaps if one does not notice the exceptionally high volume. "Exhaustion gaps are probably the easiest to trade and profit from".


There is merit in saying that common and exhaustion gaps tend to get filled. Holding positions waiting for breakout or runaway gaps to be filled can be devastating to your portfolio, though.

Saturday, February 18, 2012


Interesting tweets I've kept an eye on:

02-Jan-2012 MrContrarian Mr Contrarian
My top UK share tips for 2012. From lowest risk: SIA, TLPR, SRT, LOQ, SBT, BKIR, FCCN, OMI.
Tracker & info
13 hours ago Favorite Retweet Reply

09-Jan-2012 MrContrarian Mr Contrarian
Want income/cap gain? Lloyds pref shares v likely to restart divs soon. 11.7% yld on LLPD if so.

09-Jan-2012 MrContrarian Mr Contrarian
Investor's Chronicle (IC) Tips of the Year 2012. Track the performance of these 8 shares at

11-Jan-2012 paulypilot Paul Scott
Doubled up on £GMG, shitting myself though! I don't think it's bust, should multi-bag if Banks adjust Covenants. £20m f/holds, and £30m depn

23-Jan-2012 smarkus Steve Markus
Cautious but fairly positive update frm Finsbury Foods (£FIF.L, $FIF.L), revenues up, 1st half in line

09-Feb-2012 paulypilot Paul Scott
Impressive-looking results from Rolls-Royce. Underlying EPS up 25% to 48p. Shares 785p. Could be 100-200p upside on that, IMO.

09-Feb-2012 paulypilot Paul Scott
£GMG - 2 big sellers, per RNSs. When they're finished, should shoot up IMO. Much too cheap considering Banks now onside.

Sunday, February 12, 2012

Thoughts on Defensive Strategies

In less than a week today, my defensive portfolio on Stockopedia will have its anniversary. During that period, it has returned 12%, compared with its benchmark index (FTSE350) , which is down 4%. A 16% outperformance - I can live with that.

Now, it could of course be that the market has favoured strong companies last year, and that I had merely chosen a fortuitous time to start the portfolio. During a tearaway bull market, it would be almost inevitable that a basket of conservative companies will underperform. However, I would like to draw on a couple of sources that give me encouragement to continue my portfolio, and refine the process.

My first source, is an investor who I like to follow on Motley Fool: F958B. I hope he doesn't read this blog. That would be embarassing. Anyway, he was relating how, following a defensive strategy, he has been able to generate a captial return of over 10% pa over the last decade. Given that the market has gone nowhere in the last decade, that's an impressive return. He does have gold in his portfolio, though.

My second source is Buffett. He once commented that even if you only knew 30 companies on the "big board", you could achieve a superior return. You would have to know what the 30 were, though.

It has made me think about how a defensive strategy might work. A good place to start would be to look at the Footsie, or FT350, and eject all the cyclicals. Take a chainsaw to the miners, banks, housebuilders, and so on. The ones that are left should be the fairly stable ones. Check their balance sheets, and reject the over-indebted. This gives you a much smaller list to look at. The good news is that I don't think that deep insights are required to understand the company. Everybody understands Tesco, right? No Mike Burry genius required there.

The next trick is to look for the ones that seem historically undervalued. This is where my skills as a programmer comes in handy, as I am able to automate statistical procedures. One test that I have been working on this week is to look for companies in which their PERs are in the P20 (bottom 20% of their historic range) or P80 (top 80% of the range). Once a month, one could perform a scan of the companies in the portfolio, and eject the ones that are overvalued and buy the ones that are undervalued. It's really quite simple. I am not saying it's the only or best test that you can do. You can slice-and-dice against a different statistic, if you like.

At the moment, pundits are wondering if the market is overvalued, fairly valued, or we've started the next bull run. One guy will say that the PERs are cheap, and another guy will say that on a PE 10 basis, it is expensive, and that the high margins that companies are experiencing now are likely to evaporate.

I have been doing some preliminary work on the stats, and I must say, they do look encouraging. Choosing companies more-or-less at random, I see that GRG (Greggs) the bakers is very very close to its P20 level, suggesting it is quite cheap. TSCO (Tesco) the supermarket is cheaper than it has ever been over the last decade. VOD (Vodafone) the mobile telecom company, is on a PER of 10.5, within a whisker of its P20 level of 10.0.

I reckon it should be relatively straightforward to select 10 low-risk companies that are fairly cheap. Provided your insight into the general safety of the company isn't worng, you would have good downside protection. By carefully rotating out stocks that are expensive, and buying in stocks that are cheap, I hope to improve the performance of my defensive portfolio further. I would be well pleased if I were able to generate a 10% capital return pa. I would probably generate an above-average income, too. This might not sound a lot to most people, but I would be quite happy with that return.

We shall see.

Saturday, February 11, 2012

Anthony Bolton's Nemesis

Copied from a TMF article. Sometimes it's worth reminding myself of the basics.

Bolton reveals three investment mistakes he has made repeatedly:
  • poor management
  • ineffective business models
  • weak balance sheets - his number one factor
Bolton says that some of his favourite types of shares are those with limited downside and reasonable upside. In his own words: "These 'skewed' return companies are ones where you shouldn't lose too much money and you might just do very well."

IIRC, Pabrai did an investigation into Buffett's worst mistakes. Weak balance sheets featured highly.

Contrariwise, Greenblatt seems to have made a lot of money in mundane businesses which had a lot of debt which was gradually cleared up. I have also been reading through BB posts where people have invested in some very sticky situations, and seem to do quite well at it. It looks to be a high stakes game where picking exactly the right spots, and timing, are crucial.

Wednesday, February 8, 2012

Thomas Cook - still a mess

TCG.L (Thomas Cook) shares rose 3.9% today in early morning trading on the back of their IMS, as they reported results for 3 m/e Dec 2011.

Revenues were up 3%, helped in part by the Co-op and Russian joint ventures. Losses from operation were £91m, compared with prior year of £37m. The company cites tougher trading conditions, rising fuel costs, and disruptions in MENA (Middle East and North Africa). As ever, with Thomas Cook, there's always something. Chief Executive Sam Weihagen said "I have been encouraged by how out booking have developed". It still seems that the directors are viewing the world through rose-tinted spectacles.

The group incurred £24.9m of exceptionals, against comparative period of £16.9m. Exceptionals are not to exceptional at TCG. I totted up the basic EPS of TCG since its flotation in the previous decade. It comes to -27.05p (a loss). Compare that with its adjusted EPS total: 119.47p.

Free cash outflow for the quarter was £740m, against comparatives of £639m. TCG intends to sell off its Indian business to help reduce debt. It will also explore other opportunities.

Four directors will retire at the conclusion of the company's AGM today. Good riddance. A replacement is also sought for group CEO, Same Weihagen, who took up the position in August 2011, and will stay until an appropriate candidate is found.

Unfortunately, the IMS didn't mention the net debt position. I assume it is worse.

Although the market has reacted well to the IMS, I don't see much to cheer about. There just seems no end of the problems in sight. Based on the finals, rather than the latest IMS, TCG is on a PER of 1 (!), and a PBV of 0.1, so Mr Market is clearly having a lot of reservations on this one. Market cap is £113m, and net debt is £891m - clearly something is wrong with this picture. The latest free cash flow for the full year was £18m (190m net cash flow less 172m capex). This puts is on an EV to free cashflow of 56 ( (113+891)/18) - not cheap at all. It looks like it is going to take some kind of minor miracle to turn this tanker around.

Tuesday, February 7, 2012

TALK - TalkTalk

Much-maligned (and for good reason) fixed line telecom operator TALK.L (TalkTalk) is up 9% in early morning trading on positive IMS. They have raised guidance on EPS and EBITDA for the full year, and their cost savings are doing well, and their YouView launch is on track.

They also reported that "continuing improvement in customer experience has stabilised churn". TALK is a cheap'n'nasty phone and ISP, which has attracted much criticism from the press, and has been found guilty last year of mis-selling by Ofcom, the communications regulator. Check out online forums, where there are accusations aplenty over their contract periods and poor service. From what I've heard, I wouldn't touch this company with a bargepole.

The IMS states that it has continued to make significant improvements to customer experience, although my general perception is that TALK is patchy in that respect. It's a bit on-again and off-again.

With YouView, you can catch up on missed telly programmes, and view them on your TV. You need broadband and a set-top box.

At yesterday's share price of 118.9p, TALK has a market cap of £1.1b, a PER of 8.0, EV/Sales is 0.88, yield is 6.5%, and net debt to EBITDA of 1.9 (438/225). Sector average for PER is 10.8, and EV/Sales of 1.12, so TALK is a little cheaper than its peers. BT has net debt to EBITDA of 1.6 (9505/5886).

Director ownership is high. Charles Dunstone's stake is worth £384m, and another two directors own over £1m each. In May 2011, director Ian West bought £250k worth of shares at 138p, and £153k worth in Feb 2011 at 153p.

Monday, February 6, 2012

DTG - Dart Group

DTG.L Dart Group

DTG has been on a lot of value investors radars, including kelpiecapitalExpectingValue, valuestockinquisition and valuehunter. Good find, guys. Did I miss anyone? Anyway, their write-ups are excellent, so I state things briefly:
Dart Group PLC is an aviation services and distribution company
It operates budget aviation services throughout Europe with Jet2, and is one of the largest distributors of fresh and chilled produce to wholesale and supermarkets.

At 71p, the market cap is £101m, PE 5.0, yield 1.9%, net cash £94m, PBV 0.63, price/free cashflow 2.2, if you can believe that. Analyst forecasts look OK, so there's not much to dislike on this one.The CEO owns £40m in shares - about 40%, and there was a very recent director (Mark Laurence) buy for £49k.

The beginning of January was a great time to buy, where the shares were around 62p, near a year low, and technically oversold. It was a fair bet that anyone buying at that point was making the right decision. So naturally I didn't buy any! I mustn't complain, though, January has seen the markets make a dash for trash generally, and fortunately the trash I owned was eagerly sought by the market.

DTG has been zooming along during the last week. It's looking overbought at the moment, although it's still very cheap on fundamentals. I wont be buying any, though, as I'm trying to kick the nasty trading habit I seem to have acquired. I own companies that I'm happy with anyway, so it's better if I don't hop around.

I had disposed of PTEC (Playtech) earlier this year, in order to top up on AFF (Afferro) and SHG (Shanta Gold). AFF has had a monster run this year. It is currently overbought, and the shares are falling off their peak of 83p to 74.15p now. If the shares fall below 66-68p, I plan to sell my BLT (BHP Billiton) shares and top up on AFF. We're at less than net cash even now, and I think AFF ought to give a magnified performance (for better or worse) over BLT.

I think I should treat myself to something with my recent VOD divvies. Thank you, Mr. Vodafone.

Sunday, February 5, 2012

Sector relative strength

Following on from my previous post, the relative strengths of sectors for 1 month compared to the Footsie are as follows:

TOBACCO                2  -5.07
GAS - WATER AND MULT   6  -3.00
ELECTRICITY            6  -2.95
LEISURE GOODS          2   1.50
FOOD PRODUCERS        21   1.66
SUPPORT SERVICES      57   3.69
MEDIA                 26   6.16
BEVERAGES              6   6.73
LIFE INSURANCE        11   7.42
MINING                37  10.50
PERSONAL GOODS         3  13.57
CHEMICALS              8  13.68
BANKS                  7  22.61

The second column gives you the number of companies per subsector. The third column is the relative performance. As you can seem banks have had a blistering run. Things are a little mixed up - for example mining has had a good run overall, but not "industrial metals and mining"

Relative strength

I just had a peek at those companies with a cap of at least £100m that have fallen the month over 1 month. Amazingly, TSCO (Tesco) is third on the list, down a monster 23% relative to the Footise. Last week, its RSI was below 20%, making it aggressively oversold. TSCO was up 2.4% on Friday, and it is possible that the market might be relenting.

The only two companies that have performed worse than TSCO (over £100m - that fact is important) is CPW (Carphone Warehouse) and ESSR (Essar Energy). CPW roughly halved in share price on 27-Jan-2012 due to a special dividend of 175p. So its presence as the worst performer is just a statistical anamoly. It hasn't actually done too badly over the last month.

ESSR was floated in May 2010, entering the Footsie immediately. ESSR is in the "Alternative Energy" sector. I'm averse to this sector, but, upon reasing Google Finance, its activities seem more down-to-earth:
Essar Energy Plc is an Indian-focused energy company with assets in the existing power and oil and gas businesses. The Company combines the existing energy portfolio of the Essar Group, a diversified Indian business corporation.
Seeing the word "Indian" is almost as bad as seeing the words "Alternative Energy" in my books, though. More on that below!

ESSR has a forward PE of 9.9 (rolling figures are currently distorted by anomolous EPS figures), but it does have net debt of £2.6b against a market cap of £1.7b. Its interest cover at the recent finals stage was 1.87, which is far far from ideal. There seems to be a lot of funny-business surrounding this company at the moment. Directors own a neglible number of shares, but there is a massive shareholder, "Essar Global Ltd", that owns a whopping £1.4b. That's over 80%! I don't know entirely what the deal is here, some kind of family business pooling their interest, or something. I'm disinclined to dig deeper, given that I don't intend to touch this company with a bargepole. I sincerely doubt that I'd like what I saw, anyway.

The fun never seems to stop at ESSR, as there appears to be wrangles with the Indian authorities over a tax bill. That's just a mere entree compared to this little gem from Reuters, though:
chairman Ravi Ruia would step aside temporarily after the Central Bureau of Investigation (CBI) alleged that he had suppressed facts about the extent of an Essar Group holding in Loop Telecom, which is being probed in a multi-billion-dollar telecoms case. The CBI filed fraud charges against Ruia and other executives at Essar Group ... [ESSR said] that the charges did not relate to Essar Energy, and were not expected to have any impact on Essar Energy's business operations.
Hmmm. To borrow a quote from a poster on an RCG Holding board: "fishier than a box of flounders". Best stick to TSCO if you're looking for an oversold company.

Supermarket MRW (Morrisons) is 15th on the list - quite high up really - down 13% relative to the Footsie.

A quick scan running from the top of the list ...

Personal Goods company PZC (PZ Cussons) - famous for their Imperial Leather soap, but they also make detergents toiletries, drugs, "fats", and more besides - is down 15% relative to the Footsie, and is 8th on the list. Good company, but at a PE of 21, no wonder the share price is struggling. It's good, but not that good. Mr Market seems to be coming to senses on this one. Still a lot of froth to be knocked off this one, I would have thought.

BSY (British Sky Broadcasting) is down 9% relative to the index over 1 month. In my Defensive Portfolio over at Stockopedia, I swapped out DNO (Domino Printing Sciences) for BSY. Both are on similar PEs of 14-and-a-bit, with similar yields, but BSY has better EPS forecasts. DNO has also had a rather good run for its money lately, so there's probably more mileage to be had in BSY over DNO. Kelpie Capital wrote a nice piece on BSY on 15-Oct-2011. I'm not expecting to make a ton on it - but the defensive portfolio has actually acquited itself rather well over the last year. I'll post more news when it reaches its first anniversary.

In the real world, I continue to hold DNO, but not BSY. DNO is still a good company, and I'm getting the impression that their new egg printing investment could do rather better than I expected. To summarise the egg printing business: "that's a lot of ink". I don't want to get all rampy on this one, though. If you're looking for some quick action, you're probably better off elsewhere. DNO is looking overbought at the moment.

Friday, February 3, 2012

I feel so dirty

So, how's my little paper experiment with short-term trading working out, then? Not so bad, as it happens. A little rundown ...

TSCO - Tesco - which I also hold in real life at 327p, is down a little bit at 321p, but I'm pretty confident on this one. If it's good enough for Buffett. Looks like patience is required. It still looks cheap on a historic basis,

IDH - Immunodiag - the company slumped after fears of competition on some of its tests. I banked  profits of about 18% on those over a period of a week. Too bad, because so far I left plenty of dough on the table.

CRE - Creston - the media company that warned on profits recently. Kudos to ExpectingValue for highlighting this share in the first place. It is one a PER of 3.4, PBV 0.32, PFCF 4.8. The number of shares has ballooned nearly sixfold in the last decade, and general consensus appears to be that the directors are "generously" compensated. I'm up over 5% since purchasing earlier this week.

RGM - Regency Mines - minnow miner on a PE of 3.7. The seem to have various virtuous bits-and-bobs to look forward to. Share price is now recovering from the doldrums at the end of the year. It has made a strong recovery since then, so maybe it's not an ideal share for short-term trading. 2012 forecasts are for an EPS of 0.70p, against a share price of 1.98p, which still seems plenty cheap. I'm down fractionally on this one so far, but I'll treat this as early days.

CRND - Central Rand Gold - junior gold miner which fell to about 0.2p in October 2011, since recovered to 1.08p. It has had all sorts of difficulties and intrigues, but seems to be sorting them out. Looks cheap compared to the resources it owns. I'm slightly down on this one so far. Maybe it is taking a breather after its recent runup.

IAE - Ithacca Energy - £480m North Sea oil producer. I've got resource stocks coming out the yin-yang. No doubt there are plenty more out there that are worthwhile that I don't know about. My apologies if I missed your favourite. Anyway, back on topic. IAE has had an amazing run up since mid-January on the back of a takeover approach. I'm up on this share, although it looks overbought (unsurprisingly) and is pulling back today. I'm still going with the theory that there should be a healthy takeover premium. Maybe a safer way to have played it is to hope that the bid doesn't go through, and sends the share price crashing. IAE seems to have net cash of over £100m, and earnings are set to skyrocket next year. It is much cheaper than its peers on an EV/Sales basis, although its PE is 13.

So, let's see how this stuff all works out. So far, so good. I'm actually quite encouraged by how things are going.

Tuesday, January 31, 2012

Second-hand games market

Slashdot article "Anger with Game Content Lock Spurs Reaction From Studio Head Curt Shilling":
"Studios and publishers are fighting back hard against the used game market, with the upcoming title Kingdoms of Amular the latest to declare it will use a content lock. In this case, KoA ups the ante by locking out part of the game that's normally available in single-player mode. Gamers exploded, with many angry that game content that had shipped on the physical disc was locked away and missing, as well as being angry at the fact that content was withheld from used game players. One forum thread asking if the studio fought back against allowing EA to lock the content went on for 49 pages before Curt Shilling, the head of 38 Studios, took to the forums himself. His commentary on the situation is blunt and to the point. 'This is not 38 trying to take more of your money, or EA in this case, this is us rewarding people for helping us! If you disagree due to methodology, ok, but that is our intent... companies are still trying to figure out how to receive dollars spent on games they make, when they are bought. Is that wrong? if so please tell me how.'"

IDH take profits

I'm new to the whole world of technical analysis. IDH has filled its gap, so I'd be inclined to take profits (remember, this is a paper portfolio, though). It may have a lot further to run though. I don't know.

Notionally bought at 299.5p on 24-Jan-2012 and sold today for 356p. That's a profit of 18.9%. Too bad I can't manage to do this with any kind of consistency.

CRE- Creston

Let's see if I can replicate my success with IDH (Immunodiagnostic) (up 19% since I highlighted it!), with CRE.L (Creston).

CRE was first highlighted extensively in a post by ExpectingValue (many thanks!) in July 2011:
The group itself is a ~£66m market cap, diversified marketing and communications company ... marketing and general consultancy ... advertising, both digital through mobile, social media and general web platforms, offline, and in-store/promotional activity
Sounds like the kind of people for whom you'd slam the phone down mid-conversation.

CRE trades on a PER of 3.3, PFCF 4.5 based on full results. Clearly, all isn't happy in the world of annoying phone calls and jiggling-baloney spadvertising, or whatever it is they really do. Their IMS on 27-Jan-2012 contains the deadly words:
Despite this revenue growth, Headline PBIT is expected to be slightly below that of the prior year
The interims issued on 30-Nov-2011 showed negative net cash flow. It had net debt of £5.8m at the interim stage, and the latest final results showed a net profit of £2.3m, and net cash flows of £8.0m, so we're not at distressed levels.

Over the last 5 days, the share price has dropped 28% off the black of the recent IMS. It reached a hig of about 122p in 2011, and made it down to 46.5p within the last couple of days. Looking at the charts, it seems that from about June 2011 Mr Market was somewhat prescient about the trouble ahead.

The RSI indicates that the shares are heavily oversold (although with a drop of 28%, it would do!), has been in downtrend since July 2011, trades on a PER of 3.3, and I think we've just witnessed an exhaustion gap. So, if you're brave, and don't mind holding your nose, now might be the time to buy.

I just want to emphasise that I have no position in this company.


Monday, January 30, 2012

SHG - Shanta Gold update

SHG.L (Shanta Gold).

Update on fundraising : SHG raises 25m USD since Dec 2011 without equity dilution on favourable terms. This funding will allow for operation through to production at the NLGM (New Luika gold Mine) in April 2012. The NLGM is on track for cold commissioning in Feb, hot commissioning in Mar, and production in Apr 2012 , with full production rates being achieved by end of 2012Q2.

Bauhinia Creek update: The creek orebody is the first of several satellite gold deposits  to be exploited at the NLGM in the Chunya district of Tanzania. It is anticipated that the new mining plan will show an increase in strike length and a final depth of 200m versus the current 100m, with an increase in both production ounces and grade. The revised plan is expected to be released at end Apr 2012.

IAE - Ithaca Energy looks interesting

Oil producer IAE.L (Ithaca Energy) is doing the rounds lately, garnering a well-received writeup on TMF's Pauly Pilot's Pub, and yesterday on Stockopedia as a share that might go up 20% in a month. OK, so I'm a bit late to the party.

On 23-Jan-2012 it announced that
it has received a confidential, non-binding
proposal to acquire all of the outstanding shares of the Company
IAE is looking overbought at the moment, having jumped from about 140p to 175p over the last week. A theory is that there should still be enough maneuvering room for a premium price even at these levels.

It has a market cap of£451m, and a nice cash position of £108m. It trades on a PER of 12.6. Analysts are forecasting an EPS of 41.65p, which would put it on a forward ratio of 4.2. Not bad, even if the bid doesn't work out.


IDH - Director Purchases

Ah, don't you just love it when a plan comes together?

An RNS today announced that a concert of directors purchased 1.2m shares in IDH.L (Immunodiagnostic Systems Holdings) on 27-Jan-2012. That's about £3.8m worth. Directors holdings before the purchases was about £6.5m, which is a nice healthy amount.

Sunday, January 29, 2012

Halifax T&Cs

In the wake of the collapse of MF Global, where investors lost money due to the fact that their investments were pledged as security, I thought it prudent to start digging through the T&Cs (Terms & Conditions) of my brokerage accounts to see if there are any nasties lurking in there.

Extracts from the Halifax Share Dealing Service Terms and Conditions 1/338070-1 (03/11) (NOTE: if you're using a CFD account, different T&Cs will apply, and may be materially different wrt hypothecation)

From section 7.2:
We will not lend or deposit by way of collateral any investments in your account to a third party without your express permission.

Section 7.7:
We will hold your funds so that we
comply with the FSA Rules. This means
that we will hold your money, along with
money belonging to other customers, in
a pooled client money account with an
approved bank
Section 7.8:
In the event of an approved bank being
declared in default we will make a claim
on your behalf, including, where
applicable, through the Financial Services
Compensation Scheme. Under the
Financial Services Compensation Scheme,
compensation of up to £85,000 of funds
held with the relevant approved bank is
available to eligible claimants. You should
note that the £85,000 limit applies to the
aggregate of all your claims against the
relevant approved bank, including any
claims you may have directly against the
relevant approved bank. As such, you may
lose all or part of your funds.

Section 7.9:
If you ask us to deal in overseas
investments for you, we may hold your
money in a bank account with an approved
bank outside the UK or pass your money
to an intermediate broker or agent,
settlement agent or Over The Counter
(OTC) counterparty outside the UK. In such
circumstances the legal and regulatory
regime applying to the approved bank,
intermediate broker, settlement agent or
OTC counterparty will be different from
that of the UK and, in the event of a failure
of the bank, intermediate broker,
settlement agent or OTC counterparty
your money may be treated in a different
manner from that which would apply if
your money was held by a bank
intermediate broker, settlement agent or
OTC counterparty in the UK. Where we
hold your money in a bank account with an
overseas approved bank, such bank may
be entitled to combine the account with
any other account or to exercise any right
of set-off or counterclaim against money
in that account in respect of any sum owed
on any account of ours.
We will not be liable for the solvency,
acts or omissions of any third party
referred to in this Term.

Section 11.12:
If we appoint a custodian to act as our
nominee in respect of investments that
are subject to the law or market practice
of a jurisdiction outside the UK:
• different settlement, legal and
regulatory requirements may apply
from those in the UK; and
• there may be different practices for
the separate identification of safe
custody investments.
Hmmm, who knows what could be lurking in that statement.

Section 11.13:
We are a participant in the Financial
Services Compensation Scheme (FSCS).
As you have been categorised as a retail
client, you may be able to make a claim
on this Scheme if we default in our
obligations to you. Compensation of up
to 100% of the first £50,000 of assets held
is available to eligible claimants. If you ask,
we will send you a summary of your rights
under the Financial Services
Compensation Scheme. Further
information can also be obtained from
the Financial Services Compensation

Section 11.14:
Your investments will be pooled with
investments held for other clients.
This means that your investments will
not be identified by separate certificates.
Our nominee companies are owned by
us. If our nominee defaults, we accept
full responsibility for it. We will not
disclaim losses arising directly from its
fraud, wilful default or negligence.
We are wholly owned by the Lloyds
Banking Group.
Hmmm, the problem is that in the event of default, we can't be sure that Halifax will be able to make good on this promise.

Section 11.17:
We are not responsible for any loss
incurred as a result of the actions or
omissions of any third party.

Comments? Am I being too paranoid? Not paranoid enough? If you perform an audit of your own brokerage account, then please feel free to link below.

Saturday, January 28, 2012

6-month checkup

Let's see what silliness I was talking about in July 2011 ...

SHG (Shanta Gold) I quite liked at 23p, now 25.51p - handily beating the index. It's only recently that it has been beating the index. I wrote:
"slartybarfast" estimated that at 19p, the market cap of SHG is £50m. So, that puts SHG on a PER of about 1.5.
That would put it on a target price of 127p. Other back-of-the-envelope calculation suggest it could be in the region of 100p. The price of gold has gone up since then, and we should be much nearer to actually pouring some gold. End of 2012 Q1, if everything goes according to plan. Processing had already pushed back plans from end 2011, so any delays could scupper the share price short term. They have backup finances in place. I'm bullish on this stock, and I hope to see plenty of action out of this one. Fingers crossed!

I also liked PIC (Pace), which has declined 21% over 6 months, underperforming the indices significantly. I'm such a glutton for punishment on that dog. The share has been gaining momentum over the last month, and trades on an abysmal PER of 4.8. Non-exec Chariman Allan Leighton has made changes at the top, and looks like things are now heading in the right direction. I'm still expecting to see good things out of this one, despite the rough ride shareholders have faced in 2011.

ACHL (Asian Citrus Holdings) - the AIM company that runs orange plantations (we hope). I was downbeat on the company then. A lot of the profits come from revaluing its biological assets. Fair enough, but in common with a lot of these Chinese type stocks, cash flows are significantly below reported profits. Far too iffy for my liking. There was also some funny business involving related parties. ACHL seem to have parted ways, causing the share price to bounce. It hasn't helped long term, as the share price is down 33% over 6 months.It's on a PER of 6.8 and PBV of 0.6. The number of shares in issue has shot up again. I still wouldn't touch this one with a bargepole. I know I'm going to attract a lot of hate from the ACHL bulls for saying this: but I still think this company is uninvestable junk at any price.

Risk on

We're almost done with the first month of 2012, and some distinct patterns are emerging. The Footsie is up 2.9%. Nearly all of the good stuff is down: Brit Amer Tobacco, Morrisons, Tesco, Unilever and Vodafone. Astrazeneca managed to rise - although it's so lowly rated, one wonders how much lower it could go anyway. Diploma and Domino Printing Sciences, which I consider to be good quality companies, have also done very respectably. Maybe because they're not blue chips they've been less influenced by changes in mass psychology. Domino's egg-printing activities has been attracting some excitement (eggcitement? - d'oh) lately, although it's not exactly new news.

Some of the riskier stuff has been flying, though ... Resources in general have been doing well: BHP Billiton up 16%, and one that I've been touting a lot - Afferro - up a honking 44%. Retailers are doing OK - JD up 15%, for example. Financials have been zooming along: Lloyds up 25%, and my somewhat obscure ICP (Intermediate Capital) is up 23%. ICP recently sold patent management company CPA Global, which will generate total proceeds of £387m for ICP. It will receive total cash of £113m, and result in a £43m capital gain for the company. ICP is on a price to free cashflow of 3.4, their distressed debt idea is still looking good to go, so hopefully investors should do well out of all this.

My worst performing share this year is MRW (Morrisons), down 10%. Tesco taking a dive certainly "helped" on that score. Mid-double digit growth is expected on MRW in 2012. It is on a PER of 11.5 - not quite a decade low for the company, but pretty close. The median PER over the last decade was 15.2. So I'm happy enough about holding on to MRW.

2012 is very much a "work in progress", of course. It seems to be conforming to a general pattern I have observed - or think I have observed - over the last few years. Things go great in the beginning, but hit a snag sometime in Q1. Then it's down we go, with all the risky stuff taking a major tumble. So there's everything still to play for. We're also seeing that it's sectors, not shares, that are dominating investor returns.

I'm about 40% quality/defensives, and 60% 'risky' companies. I don't claim this to be an optimal mix, as it's more historical accident than planned exposure, although maybe it on reflection it looks  quite good from a risk/reward point-of-view.

Wednesday, January 25, 2012

RCG Holdings

Ah, good old RCG Holdings, where the intrigue never dies. There's a nice write-up on TMF which explains much of it:

Over the year they've announced the departure of the CEO then the CFO and more recently the COO. They are changing strategy from selling techie equipment to 'offering solutions, projects and services'. As a result they have written off vast amounts of stock and good will. The new strategy hasn't been that successful due to delays in projects.
 A major shareholder in RCG, Ms. Nina Kung, a very wealthy HK celebrity, died and her boyfriend Fung Shui Master Tony Chan claimed that he inherited her RCG shares. A major court case was initiated. Later in early 2010 Tony Chan was arrested in the wake of a High Court judge's ruling that a will giving him Nina Wang's HK$100 billion estate was a forgery. The judge described Chan as a liar and a scheming sycophant lacking in credibility. Round about the same time the RCG offices were raided by the HK Police but no further action was taken

In the last few days the company, just to remind you, an international provider of biometric and RFID products and solution services with a primary focus in the Asia Pacific markets, acquired a mining and exploration company called SPAG. Just don't ask !!.
 Groovy stuff. I wouldn't touch it with a bargepole, of course.

Tuesday, January 24, 2012

Make your mind up!

Gotta love this ... I'm reading the Herald Scotland at the mo'.

In this article, they say
SHARES in Glasgow-based engineering company Weir Group plunged 3.6% yesterday after an influential analyst downgraded its stance on the company due to low gas prices.
Their next article, OTOH, expects "Bright future forecast for oil and gas firms".

They can't both be right, surely.

IDH - Immunofiagnostic Systems

I continue my foray along the Dark Side, trying to sort out my head from my tails in technical analysis.

Here's an interesting one: IDH. It gapped down 18% yesterday, after releasing its latest IMS. It makes diagnostic test kits. Revenues were up from 35.4m to 39.4, for the year. The gist of the concerns seem to be that everyone is thinking the company has gone ex-growth. They are facing increasing competition in their non-automated tests. Their IDS-iSYS test, which is automated, is holding its own, and the company expects to keep investing in new product development, in which is sees a significant unmet market need.

The shares traded near a high of 1200p in Jul 2011, and have been in downtrend since then. They stand at 292p. RSI is below 30 - suggesting that the shares are oversold. This, combined with the gap-down on high volumet yesterday after a significant downtrend suggests that we have just witnessed an exhaustion gap, and now is a good time to buy.

The company has a market cap of £83m, is on AIM, on a PER of 6, and has net cash of £3.3m. So even if it has gone ex-growth, the low PE gives some protection.

I own no shares in IDH, BTW. I'm just learning technical analysis, and just rambling. So caveat emptor.


Playtech update

PTEC (Playtech) is a weird old company. At a market cap of £904m, it gets very little attention out of ADVFN posters. PER of just under 9, ROE of 20%, net cash £56m. A clutch of reports were issued by the company today:
  • Acqusition of Geneity Ltd
  • Signs German JV with Gauselmann
  • Seals South African JV with Peermont
  • issues KPIs
In the KPIs, total revenues up 89%. Everything is going up ... except the share price, which is down 4.6% on the news above. All very curious.

Just a reminder that I bailed out on PTEC earlier this year due to what I perceived to be the overwhelming smell of haddock.


Monday, January 23, 2012


SHG (Shanta Gold) up 7.3% today. Apparently it was tipped in Daily Mail on Saturday. SHG is attracting attention now. Interactive Investor also produced a video on it on 12-Jan-2012. I have a Google Doc on it, in which I guesstimated a fair value of about 100p. Current price is 25p, so there's plenty of upside left on this badboy.

AFF (Afferro Mining) up 2% today. Its rise continues unabated - hopefully they'll be a pullback soon. At 77.5p, it's now at least made it to its net cash position. Plenty of value still left.

OPTS - nice little update

OPT (Optos) is a medical retinal imaging company. It takes pictures of your eyes, basically. It can be used in medical diagnosis. The company's uinique selling point is that it can image a much wider range of the retina than competitors. There is even talk that it may help in the diagnosis of Alzheimers - although the company does not reference that in its IMS.

OPTS has a market cap of 149, is trading on a PER of 10.8, has net debt of 16m. and interest cover of 10.5. Its ROE is 23%. Revenues had increased from 66m in 2010 to 91m in 2011. Looks like a really nice GARP company. The share price has been very volatile the last year. I own a very small amount of this stock, and I'm beginning to wish I had bought more.

It released a cracker of an IMS today for Q1FY12, against comparatives of Q1FY11. Revenues up 20%, 11% on a like-for-like basis. In terms of devices, 32 rentals have been de-installed, 59 are new, and there are 425 renewals. The company is aiming to transition customers from P200 to Daytona.

Daytona (their latest and greatest product) is on track to launch in 2012Q1, with design optimisation nearing completion, and manufacturing scale-up underway. Clinical studies commencing in 4 centres to support the market launch.

TSCO - Filling the gap

I've gone over to the dark side and started learning about technical analysis, particularly about gaps. Tescos up 0.9% today. It looks like it's filling up the downgap nicely. I can't see this puppy going below 312p, which is the low it reached last week,  especially with Buffett on board. I'm hoping it will make it to 380p, filling up most of that gap. If I'm right, still plenty of money left to be made.

So, how's my gobbledegook, then?

Not sure I'll flip this one, though - it seems like a headache-free investment with a nice divvie - well, OK, headache-free if you didn't buy at 380p+.

Sunday, January 22, 2012

PFD - Premier Food

PFD operate in the food product sector, with over 40 brands. It has 8 “power brands”: Hovis, Ambrosia, Mr. Kipling, Sharwood's, Loyd Grossman, Bisto, Oxo and Batchelors.

As at 22-Jan-2012, it is trading at 7.71p, with a market cap of £185m, on a PER of 3.44. In its sector, the average PE is 12.6, and EV/Sales is 3.1, compared with PFD, which is 0.5. Clearly, something is very wrong with this picture, and there’s no prizes for guessing the cause: it has net debt of £1.1b. Based on FY2010, PFD has P/FCF of 1.5, which looks great. Factoring in the net debt of 1261m, though, its EV/FCF is 11.9 - I would hope for a max of 10. The situation has deteriorated in 2011H2, where it produced negative net cash flow. Operating cash flows were down a lot, and interest payments were down a little - hence the negative net cash flow (before capex, I might emphasise).  

On 19-Jan-2012, Fitch downgraded its debt from BB- to B+. “The downgrade reflects a lowering of Fitch's EBITDA expectations for 2011 and beyond, the ongoing tough UK retail environment which is translating into continued price pressure on food manufacturers, as well as the uncertainties arising from the current debt renegotiation and its terms.” Oh dear.

TMF is running a thread ( on PFD. It contains a lot more detail than I’m presenting here. Quality stuff.

Some positive news is that the company is selling of some its peripheral brands, the debt convenants have been shifted to March (they would have failed if tested in Dec 2011), they are axing 600 jobs, and they expect cost savings to increase from £20m to £40m. In their interim results published 05-Aug-2011, they reported net debt of 1139m, down from 1261m when they reported on 15-Feb-2011. Their debt seems to have topped out in their 28-Aug-2008 report, which was at 1805m. So debt is going down. The banks also seem to be a little bit flexible when it comes to loan negotiation.

PFD does have some strong brands, so it’s not in a structural decline like HMV. The really worrying thing, though, is that in their last set of interims, operating cashflow was 28m, against interest payments of 46m. The comparables last year were 83m and 50m, respectively. So the big question is: is the reduction in cashflow permanent, or a temporary blip? If it can’t restore its cashflow to cover interest payments, then it will be curtains

This company is a clear case of aggressive expansion using a mountain of debt, with inevitable collapse when the landscape changed. I dare say that the proceeds of disposal will be less than the purchase, due to the distressed nature of the sales. Buy high, sell low. On 08-Dec-2011, f PFD agreed to sell Brookes Avana to 2 Sisters Food for £30m. For y/e/ 31-Dec-2010 Brookes had a turnover of 204m, and a trading loss of 0.1m. That should wipe a little more off the debt, but it doesn’t look like it will improve their operating cashflows that much.

It will be interesting to see how this unfolds; from a safe distance, of course.

Saturday, January 21, 2012

Greenblatt - Genius

From page 28:
As much as possible, you don't want to be well paid merely for taking big risks. Anyone can manage that. You want to be well paid because you did your homework. If you are one of the few people to analyze a particular investment opportunity, it follows that you are in the best position to assess the appropriate payoff for the risk taken. Not all obscure or hidden investment opportunities are attractive. The idea is to place your "bets" in situations where the rewards promise to greatly outweigh the risks.

Wednesday, January 18, 2012


Many thanks go to Nate Tobik at Oddball stocks for his post answering my questions about net-nets. Sketch notes below

Prefer cash and receivables to inventory. Avoid high debt. Poor management often want to lever up. Ensure trading is at least cashflow positive, otherwise the asset base can be eroded. If ncav is mostly inventory, look at the operations for potential margin expansion. Exit when the company reaches ncav - they're usually lousy businesses, and aren't worth holding beyond that.

Many thanks, Nate.

Tuesday, January 17, 2012

CRND - Central Rand Gold

I just the quickest of quick looks at CRND Central Rand Gold. Sheesh, I'm gonna get real stung by these resources one day. Anyway, ultra-quick workup ...

I noticed CRND mentioned on TMF under the article "A portfolio of punished penny shares":
I'll tell you of a punished penny share. A Gold Mine that is flooded with water ,a Gold Mine that lost its mining rights. A Gold Mine that has brought pumps to get rid of said water.They will be operational in around 6 months. A Gold Mine that has got its Licence back. A Gold Mine that could produce 7000 ounces a month. Was down to 0.3p now 1.03p . I brought @ 0.78p . The name ? Central Rand ,ticker CRND as always DYOR ( do your own research)

Working on the basis of 7000 oz pm - assuming that's correct - that's 84k oz pa. Gold at 1600 USD / oz means revenues of 134.4m USD pa, which is about 87m GBP. There is 1599.68m shares in issue, so revenue is about 5.4pps. Goldies seem to be trading at 2.2X revenue, suggesting a fair price of  11.88p. Current price: 1.08p.

Although riskier thatn SHG (which in itself is risky enough), it has a lot more upside that SHG (with a FV of about 100p, against SP of 23p). I haven't checked any of the facts in the foregoing statement, or tried to gauge the level of profit from the revenues, so it's a monster DYOR on this one. Still, interesting nonetheless.


SHG - Shanta Gold

I said I'd do a little writeup on Shanta ... and here it is.

Quick run-down on Shanta:
SHG is a gold explorer in Tanzania. Production is expected in 2012.

2011 saw its share price drop by 22%. This was due to a combination of factors:
  • an unexpected share placing at 18p, which drove the share price down
  • general negative sentiment against the resource sector. Large-cap miner BLT (BHP Billiton) dropped 25% for the year, for example.
  • mining at New Luika did not commence in December 2011, as originally planned, due to delays in the construction of the mine’s process plant. Management has pushed pushed back the commissioning to the end of 2012Q1. Shares dropped 6% as a result.

SHG currently has stockpiled gold. The delay in processing it, particularly about the timing and the possibility of further delays, has raised concerns about SHG’s cash position. However, on 21-Dec-2011, SHG announced that it had secured a first bridging loan of 5m USD, with a second one for 15-20m USD in an advanced stage of negotiations.

Short-term backup finance therefore looks in place, despite market fears, and I believe that the completion of the construction of the processing plant will act as a near-term catalyst for the re-rating of the shares. I expect the share price to arise in anticipation of the happy day, although of course there could be further delays that will negatively affect sentiment.

I estimated  a fair value of 100p:
Looking at New Luika, production over first 3 years is estimated at 175-190,000 oz. Call is 60,000 oz pa. Let's say costs are 610 USD/oz, towards the high end, and hopefully absorbing all the other costs. If gold is say 1610 USD/oz, that's a profit of about 1000 USD/oz. Assuming tax at 30%, and a ROX of 1 USD = 0.654 GBP, that works out at a profit of £27.5m (= 60000 * 1000 * 0.7 * 0.654), or close to 10pps. Digital Look show analyst estimates of 12.26pps. So at least I'm in the right ballpark. Based on a PER of 12.26p, that puts Shanta on a PE of less than 3. I can’t imagine that situation lasting much longer.
You can see a more detailed writeup by me as a Google Doc. I also point to a more detailed, and hence more accurate, gauge on expected profits in the doc.



ICP - Intermediate Capital

ICP - it's all going according to my cunning plan. IMS issued today for 3 m/e 20-Dec-2011:
Our mezzanine portfolio continues to perform well. The last quarter of 2011 saw a very low level of activity in the European private equity industry due to the uncertain economic outlook and, above all, to the absence of senior debt financing. We are seeing evidence that European banks are further retrenching from LBO financing. As a result, private equity sponsors are now focussing on the refinancing risk of their portfolio companies and we have seen a material pick up in the pipeline of potential new investments in capital restructurings of solid companies.
No major insight went into my purchase of this share last year - the company had highlighted its opportunities some time ago, and it was cheap. Sometimes it pays just to keep things simple and do the obvious.

Shares up 3.3%, although the market is up 1.2%.

Monday, January 16, 2012

Dropping like flies

The market is certainly been acting goofy the last week ...

TSCO (Tescos) the supermarket chain - market cap £25.4b - down 16% on Thu 12-Jan-2012. It reported UK LFL sales down 1.5%.

ISYS (Invensys) the software company - market cap £1.5b - down 21% on Fri 13-Jan-2012. It warned that profits would be signficiantly lower due to contract delays and engineering problems.

CCL (Carnival) the cruise operator - market cap £4.8b - down 19% on opening trade on Mon 16-Jan-2012. One of its ships, Costa Concordia, grounded. The loss is expected to be $85-$95m. A drop of 19% corresponds to a loss in market value of £96m, which is about $146m.

Interesting times. Who's next, I wonder.

Sunday, January 15, 2012

Tesco in Korea

I saw this video some time ago - but couldn't locate it. In South Korea, Tesco has a "virtual store". They have pictures as advertising boards, which lays out merchandise exactly at would appear in the supermarkets. You then photo the image using your smart phone, scan the "QR code", and the item appears in you virtual cart. You can pay, and have the goods delivered when you get home.

Go figure.

ICP - Intermediate Capital

I'm just taking another look at the situation on ICP.
 Intermediate Capital Group plc is an independent mezzanine provider with investment portfolios in Europe, Asia Pacific and the United States. It structures and provides mezzanine finance, leveraged credit and minority equity.
On a PBV basis, it looks undervalued: it is currently trading on a PBV of 0.7, whereas over the last decade it was 1.8. So, there's considerable upside looking at it from a PBV viewpoint. Looking at a PER basis suggests maybe a more modest rise: currently trading at a PER of 7.7, against its historic norms of 12.7.

The largest director deals over the last year look to amount to about £1m and a bit - the bulk of which was by Attwood at 324p. Current share price is 245p. Attwood owns about £3.2m in shares, and Evain about £1.9m. Not bad.

Their trading statement on 06-Oct-2011 highlighted the following:

the imbalance between supply
and demand for credit which will remain a feature of the European credit markets
for the foreseeable future.  This imbalance is placing considerable stress on
credit markets and therefore presents considerable opportunities for specialist
lenders to generate high returns by acquiring debt at attractive discounts in a
distressed market, providing recovery finance to existing buyouts and offering
reliable financing solutions for new transactions.
 On 30-Nov-2011 it launched a 7% retail bond.

Things are pretty much the same as the last time I looked at them, and things seem to be going according to plan. Looking good.

AFF - Afferro Mining

Not about AFF directly, but something I'll work into my valuations.

Link Bloomberg reported 2 days ago:
Exxaro Resources Ltd. agreed to buy African Iron Ltd. for about A$338 million ($349 million) Exxaro will pay as much as 57 cents a share and 37 cents an option for Perth-based African Iron, they said today in a joint statement.
Having a quick squint at African Iron Ltd's website:

The Mayoko Project is located in the politically stable Republic of Congo and is directly connected to the Atlantic sea port of Pointe Noire by an operational railway.The Mayoko Project has an existing DSO Inferred Mineral Resource of 33Mt at 56% Fe and six targets with an exploration target size totalling 0.9-1.3Bt1 of hematite and magnetite.Recent diamond drilling has confirmed potential extensions to the DSO Resource at Mt Lekoumou and demonstrated enriched banded iron formation ('BIF') over a 7km strike as potential “beneficiable” DSO ('bDSO') to extend DSO mine life and/or increase the production rate.The objective is to commence initial DSO production by mid 2013, ramping up to a steady state 5Mtpa.

Mt Lekoumou has an Inferred Mineral Resource of 33Mt at 56% Fe (with a 50% Fe cut-off) prepared in 2008 based on 36 shallow diamond drill holes completed by ICES-Geomin in 1974-75.
18 diamond drill holes (3,687m) completed between Jan-Aug 2010. This diamond drilling confirmed the 2008 resource and demonstrated resource upside. The drilling also showed weathered enriched hematite and underlying fresh magnetite BIF in lenses 50-200m thick over a strike length of 7km.

Healtcare producers

Background work for discussion of SCHE.


     mkt  per
amei  10 -1.8
cth   49  3.8
mdg    4  6.1
sche   1  0.1
syr  248 15.0
tstl  16 18.0

Saturday, January 14, 2012

SHG - Shanta Gold

Some sketch notes of the Interactive Investor iBall video on Shanta Gold released on Thu 12-Jan-2012.

SHG soon to go into production. 2012Q1 estimated - there were delays due to equipment delivery. SHG's ventual goal is 200k oz pa. Singida is expected to prodcue 45k oz pa when it goes live in 2013. Most eyes are on New Luika, where production is expected Real Soon Now. It already has a stockpile that needs processing. New Luika is expected to produce 190k oz in the first three years. It should pay for itself in the first 12 months, and then bankroll Singida.

Bridging loans are in place, and the company does not expect to have to go to the Market for additional funding.

Posters have speculated that institutional investors therefore have no incentive to sit on the sidelines and hope to pick up stock cheap in a placing. they'll have to invest directly, if they want it.

Brokers have pencilled in 12.26p for both y/e 31-Dec-2012 and y/e 31-Dec-2013. I presume these estimates were done prior to a knowledge of the delays. Still, on a forward PER of 1.9, there's plenty of room for a huge margin of error.

I have a holding in SHG.


Investor fickleness

Not that I've never been a fickle-minded investor myself ... but I thought it'd be interesting to put the latest Tesco saga into some perspective.

Looking over at the Morrisons board, I can't see many negative comments. Here's what someone said on 06-Dec-2011:
I'd agree with that around the heartland of Leeds / Bradford too, stores are notably more busy than usual with queues despite adequate amounts of checkouts being open.
I had to go back to 24-Nov-2011 to see anything especially negative:
I feel he will destroy rather than create shareholder value, in his pursuit of copying the worst bits of Tesco and Sainsbury
 Sainsbury's had no special comments on it either, so I'll skip that.

 Now look at the Tesco's boards. Although there are of course positive comments, there are many negative ones:
they have pushed, shoved and stamped on everyone in the way
 They're bad bast*rds and should all be hanged
 Another example of poor UK corporate and political governance
 has Mr Buffet got it wrong this time
they have been replacing well known brands with their own not much cheaper inferior brands
You get the idea. There are some positive posts, but they are almost all uniformly negative, pointing out it's a defensive company, and so on. There are also references to Anthony Worrall Thompson, but I'll regard those as an irrelevancy.

Rewind to August time, before the recent RNS which caused a massive decline in the stock, and people were talking about:
their real growth focus is overseas, particularly Asia, rather than in the UK.
and Citigroup notes:
A supermarket price war might be just over the horizon ... Tesco is now 30% more expensive than Aldi ... We believe the current situation is unsustainable.
This share is a dog
Well the jury is still out on the macro issue but, more specifically, TSCO is heading lower and the next question is whether it will breach the two year closing low of 360p which it touched a couple of weeks ago. In my view there are management questions, strategic developments and competitive issues which are current factors that are also impacting sentiment here too
 Tesco plc (LON:TSCO) shares are due a rebound
Goldmans and Nomura out this morning reiterating their 'buys' and 500p TP while Citi retaining 'sell' TP 385p
 Actually, the above comments surprised me. I had expected them to be more positive.

It's noteworthy that a clutch of analysts downgraded TSCO when it announced the UK LFL fall, and the share price has plummeted over 15%.

Also noteworthy is the fact that over the last 3 years, TSCO has declined 13%, whilst the Footsie has risen 27%. Patience isn't always rewarded.

What to look for

Link on citywire, which asks what to look for in buying a share. Comment #6 reads:
here are my six trading rules, as u can see only one refers to stock selection.

Rule 1
Fundamentals gets a share into your buy list, they will not get you out of a bad trade. Fundamentals are useful but remember that how a market should react and how it does react are two very, very different things. Don't get married to a fundamental opinion if the price does not confirm it.

Rule 2
If you have to look, it isn’t there.
Forget your college degree and trust your instincts. The best trades jump out of nowhere and create a sense of urgency. Take a deep breath, then act quickly before the opportunity disappears.

Rule 3
Price has memory.
What happened the last time a stock hit a certain level? Chances are it will happen again. Watch trades closely when price returns to a battleground.
The prior action can predict the future.

Rule 4
BIG LOSSES rarely come without warning.
You have no one to blame but yourself. The chart told you to leave, the news told you to leave and your mother told you to leave. Learn to visualize trouble and head for safety with only a few bars of information.

Rule 5
Support/Resistance is the key to the market
This is one of the only technicals that the professionals keep coming back too. Where are the support and resistance points? To determine their validity, watch the strength of the price at them.
Buy at support. Sell at resistance.
Trend has only two choices upon reaching a barrier: Continue forward or reverse. Get it right and start counting your money

Rule 6
Bulls live above the 200-day moving average, bears live below.
Bulls live above the cloud, bears live below.
Are you flying with the birds or swimming with the fishes? The 200-day moving
average divides the investing world in two. Bulls and greed live above the 200-day, while bears and fear live below. Sellers eat up rallies below this line and buyers come to the rescue above it.

Thursday, January 12, 2012

Every little helps

In 2011, RB (Reckitt Benckiser) was down 7% in a day on news that a director had decided to retire (he was only in his 40's, or was it 50's?). The share price quickly recovered. Today, TSCO (Tecso) was down a honking 16% on news that UK l-f-l sales were down 1.3%. TSCO now trades on a PER of  9.2, lower than at any point during the last decade.

That such big, stable, profitable companies can experience such precipitous market declines is quite amazing. Anyone who loaded up today is going to make a lot of money; I'm pretty sure of it. I reckon it's a trade that, in the course of a week, could earn as much as the rest of the market will in a year (that's not an actual prediction as to how I think the market will perform, mind).  The trick is knowing exactly the right share to go all-in on.

We shall see. 323.45p

Best metric: EBITDA/TEV

Turnkey analyst state:
We compare the investment performance of portfolios sorted on different valuation measures.  EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market.  We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics.