Diary: blt, pol, mining,

No general chat today, onwards with specific shares.

BLT - BHP Billiton - Mining - 1983.4p/£41.9b

I doubt that BLT needs much introduction to most people - it's a big cap miner into all sorts of things, including oil. It's been cropping up on my magic formula screens, with an UEY of 41.9%, and ROC of 39.6%. I haven't varified these figures; but I can see that it has a PER of 7.6, tangible gearing of 10%, and operating margins of 44% - so they're probably right, even without me delving into the minutiae. BLT has little in the way of intangible assets - a remarkable feat for a large company (and many times, even a small one). Its PTBV os 1.24, which looks about the cheapest it has been in the last decade (based on yearly snapshots) - and that includes 2008/09. It has a beta of 1.55, making it a very volatile stock. However, the whole thing just screams "bargain".

Needless to say, things are never that easy. There's a lot of macro stuff to worry about. If the world dips into recession, esp. wrt China, that could well take commodities down. The counterargument is that if we start printing money to erase debt, then commodities will go up in price.

Still, given the low PBTV, I think we'll be looking at this share in a couple of year's time and kicking ourselves for not buying something which was "obviously" undervalued. As regards the macro, pfft, who knows. You're either right or wrong on that. In the words of Master Yoda, "Difficult to see, the future is". The mean PTBV of the last decade is 3.5, so I see a big upside on this one.



POL - Polo Resources - "Financial services" - 3.6p/£84m

"Polo Resources Limited (Polo) is a natural resources investment company focused on investing in undervalued companies and projects. Polo will primarily invest in companies with producing assets and/or resources and reserves." So, buy a uranium mine at one price, and then sell it later for a lot more, that kind of thing. Directors own over £10m in shares.  I invested in this baby last year, and it netted me over a 50% return. If I had bought in earlier, I would have been able to buy it close to free - but I didn't know that at the time. It was my favourite play in 2010. The directors have done a good job at creating value for shareholders. It is currently coming up high on my magic formula - but a word of warning about that - expect profits to be lumpy and unpredictable, as gains or losses are made on the disposal of assets. For this reason, I'd forget about looking at the income statement. I think of it in the same way as an investment trust - what you want to look at is the net asset value. Also, the company sometimes makes substantial special dividends - for example, in October it paid a divvie of 2p, against a share price of about 5.7p. So you can't just look at the share price perfrormance in isolation, you have to look at total return. Also, keep an eye on director purchases - that could well be a tipoff that the assets are understated on the books. That's the logic I used last year, and it worked well for me.

The latest directors purchase was in May 2011, for £115k, at 5.75p. POL has paid a special divvie since then, implying an ex-divvie price of 3.75p. The shares currently stand at 3.5p.

According to Sharelock, on 05-Sep-2011 POL has a NAV of £142.9m for 12 m/e 30-Jun-2011. There are 2304m shares in issue, so that works out at a NAV of  6.1pps. It has no intangibles. Now, the tricky bit is that it proposed a divvie of 2pps, paid on 21-Sep-2011, which it didn't accrue in its FY accounts. That means you have to deduct the 2p from 6.1p to get at the current NAV of the company: which is 4.1p. That's actually disappointing, because at 3.6p, that is only a discount of 12% (= 1-3.6/4.1) to NAV, rather than a more mouth-watering 41% (=1-3.6/6.1). If you'd have only looked at Sharelock, you would have made an incomplete determination.

I see that in note 15 to the accounts, interests in associates has a carrying value of $161.9m, with a fair value of $176.8m. According to Google, the difference, $14.9m,  works out at about £9.3m, or 0.40pps, which increases the discount to 20% (= 1 - 3.6/(4.1+0.4)).

This one doesn't scream at me. No doubt the directors will make savvy decisions, but I want some evidence of value NOW. The stock also seems to be pretty heavily followed on the Interactive Investor BB, which isn't a good sign. Oh well, it was a great little pick last year, but not so at the present time. Worth keeping an eye on, though.

Diary: miners, shp

Mining sector
I was becoming concerned that I was over-exposed to the mining sector, so I decided to perform a break-down, by sector, of the  Footsie. Here are my results:

Row Labels	Sum of MarketCap	%age
AEROSPACE AND DEFENCE	25312	1.7%
ALTERNATIVE ENERGY	3678	0.3%
AUTOMOBILES AND PARTS	3068	0.2%
BANKS	186295	12.9%
BEVERAGES	68379	4.7%
CHEMICALS	3819	0.3%
ELECTRICITY	12680	0.9%
FINANCIAL SERVICES	15579	1.1%
FIXED LINE TELECOMMUNICATIONS	14101	1.0%
FOOD AND DRUG RETAILERS	46186	3.2%
FOOD PRODUCERS	38793	2.7%
GAS - WATER AND MULTIUTILITIES	62908	4.3%
GENERAL INDUSTRIALS	6598	0.5%
GENERAL RETAILERS	15906	1.1%
HEALTH CARE EQUIPMENT AND SERVICES	5238	0.4%
HOUSEHOLD GOODS AND HOME CONSTRUCTION	24444	1.7%
INDUSTRIAL ENGINEERING	6162	0.4%
LIFE INSURANCE	46794	3.2%
MEDIA	38624	2.7%
MINING	226938	15.7%
MOBILE TELECOMMUNICATIONS	89939	6.2%
NONLIFE INSURANCE	7469	0.5%
OIL AND GAS PRODUCERS	200809	13.9%
OIL EQUIPMENT - SERVICES AND DISTRIBUTION	7560	0.5%
PERSONAL GOODS	5670	0.4%
PHARMACEUTICALS AND BIOTECHNOLOGY	121155	8.4%
REAL ESTATE INVESTMENT TRUSTS	16091	1.1%
SOFTWARE AND COMPUTER SERVICES	3686	0.3%
SUPPORT SERVICES	33701	2.3%
TECHNOLOGY HARDWARE AND EQUIPMENT	8015	0.6%
TOBACCO	77702	5.4%
TRAVEL AND LEISURE	24222	1.7%
(blank)
Grand Total	1447518	100.0%

There is likely to be some distortion in the results, as BLT (BHP Billiton), for example, has significant exposure to the oil sector, despite being classified as a miner. Resources make up about 30% of the entire market capitalisation of the Footsie (I'm lumping mining and oilies together); which, as Ben Graham would say, "is significant if true". Look at how very little exposure the Footsie has to sectors like retailers; which you'd think still has some relevance to the UK economy. I'm not making a short-term prognostication about the direction of commodities, but it's interesting to note what I think is a micro-economic wheel that has been set in motion: anecdotally, it seems to me that it is relatively easy for miners to raise capital. So you can see, even now, that the seeds for the destruction of the commodity sector as being sewn even today. There are other common-sense arguments for being bearish on commodities: the 30% statistic for starters, and the fact that ESSR (Essar Energy) floated last year, making its way straight into the Footsie. Like I say, I'm not making a short-term prognostication. It's entirely possible that the commodities bull market has another decade to run.

For the record, I have 14% exposure to the resources sector.

SHP: Shire - Pharma and Bio - 2062.9p/£11.6b
Time for a quick squint at a growth share. According to Google:

Shire plc (Shire)is a specialty biopharmaceutical company that focuses on meeting the needs of the specialist physician. Shire focuses its business on attention deficit hyperactivity disorder (ADHD), human genetic therapies (HGT) and gastrointestinal (GI) diseases.

 Here are some stats:

SHP
	Current	5 yr median
PER	21.2	18.2
ROE	20%	23%
Operating Margin	23%	15%
Gearing	32%
z-score	4.25
Net cash/mkt cap	-5%
Net cash/net profit	-1.1
NCAV/MKT	-8%
Insiders	£8m
5-year growth:
-revenue	23%
- operating profit	45%
- EPS (adj)	27%

Looking at the boards, there was talk of a bid in July 2011, which is a negative. The boards are generally very quiet. The RNS issued on 11-Aug-2011 looked positive, although you'd probably expect that from a growth company. Here's some highlights:

• another strong year, EPS up 26%
• preparing for for US launch of Firazyr, and hoping for FDA approval in August
• proprietory tech platforms in development
• R&D increased to $355m for 6 m/e Jun 2011 (19% of product sales)