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.
Tuesday, November 8, 2011
Monday, November 7, 2011
Diary
Same facts, different interpretation
In Santangel's Review, Wilbur Ross says that Japan is a play on emerging markets, as it sells 72% of their exports there. In my previous post, I mentioned that Hugh Hendry thought that China was in a bubble, was too dangerous to short directly, and hence looked towards Japan as a shorting opportunity. It's the Japanese reliance on China that made it that way.
Ross points out that the Japanese market trades at one times book value - which looks pretty cheap.
Jim Chanos has recently expressed the view that he thinks that the property in China has started, and that the country "is on a bigger and faster treadmill to hell".
It's never a one-horse race, is it?
In Santangel's Review, Wilbur Ross says that Japan is a play on emerging markets, as it sells 72% of their exports there. In my previous post, I mentioned that Hugh Hendry thought that China was in a bubble, was too dangerous to short directly, and hence looked towards Japan as a shorting opportunity. It's the Japanese reliance on China that made it that way.
Ross points out that the Japanese market trades at one times book value - which looks pretty cheap.
Jim Chanos has recently expressed the view that he thinks that the property in China has started, and that the country "is on a bigger and faster treadmill to hell".
It's never a one-horse race, is it?
Diary
If you're so smart, why aren't you rich?
A short video by Bill Ackman, summarised below.
To be a successful investor you need to be able to avoid natural human tendencies to follow the herd. If the stock market is going down every day, your natural reaction is to tend to want to sell. But you should probably be a buyer. You also need to be able to withstand volatility. The way you do this is:
Hugh Hendry
There are a series of videos from curmudgeony hedgie Hugh Hendry. Worth a listen if you've got the time.
In part 2, he makes what I think is a key point about China, something that you almost never hear being mentioned: "if you're spending money without the intent of any economic return, then you're spending money poorly". He points out that GDP doesn't necessarily mean wealth. If you make a building, then that contributes to GDP, but if that building remains empty, then it doesn't constitute real wealth.
In part 3, he talks about shorting. He says that you can be burnt bad. An interesting comment he makes that if you want to make a contrarian bet, and he talks specifically about shorting China, he says you can't do it directly; because you're so likely to get burnt (reminds me of Whitney Tilson's ill-fated short on Netflix). What he does is to take an indirect route, by shorting Japanese stocks, which are heavily dependent on trade with China.
In part 4, he says: "We spend so much time, resources and money trying to see the future - really we're spending money trying to delude ourself. You have no chance of seeing the future, it's better to recognise that". At around the 09:39 mark, he talks about how he was reading the story of another hedge fund manager, who was running a statistical merger arbitrage fund. Hendry was deeply impressed by the intellectual rigour of the manager. When he was considering an investment in an oil business, he even took an engineering course at university, such was his detailed knowledge of his positions. BUT, in 2008, both of those funds disappeared . "They had been driving too fast", as Hendry put it. He was also talking about how someone came to him with some fantastic insights on a pharmaceutical company. Hendy became excited about this, and instead of taking a 50bp position, he took a 250bp position. After investing, he said "and of course it had a profit warning and dropped 40%". He said that he had deluded himself with the notion that he had seen the future. He said that, in some respects, he doesn't want to know, he doesn't want to do stock research; he wants to have a trepidation where he doesn't want to know the complete picture. He would rather watch the charts like a hawk, and trade if it breaks down. His final words on hedge fund management: "proctrastination kills you in a business determined by risk".
A short video by Bill Ackman, summarised below.
To be a successful investor you need to be able to avoid natural human tendencies to follow the herd. If the stock market is going down every day, your natural reaction is to tend to want to sell. But you should probably be a buyer. You also need to be able to withstand volatility. The way you do this is:
- be financially secure
- don't get spooked by short-term fluctuations. Just because a stock goes down after you buy it, doesn't mean you've made a mistake.
- do your own work
- invest at a reasonable price
Hugh Hendry
There are a series of videos from curmudgeony hedgie Hugh Hendry. Worth a listen if you've got the time.
In part 2, he makes what I think is a key point about China, something that you almost never hear being mentioned: "if you're spending money without the intent of any economic return, then you're spending money poorly". He points out that GDP doesn't necessarily mean wealth. If you make a building, then that contributes to GDP, but if that building remains empty, then it doesn't constitute real wealth.
In part 3, he talks about shorting. He says that you can be burnt bad. An interesting comment he makes that if you want to make a contrarian bet, and he talks specifically about shorting China, he says you can't do it directly; because you're so likely to get burnt (reminds me of Whitney Tilson's ill-fated short on Netflix). What he does is to take an indirect route, by shorting Japanese stocks, which are heavily dependent on trade with China.
In part 4, he says: "We spend so much time, resources and money trying to see the future - really we're spending money trying to delude ourself. You have no chance of seeing the future, it's better to recognise that". At around the 09:39 mark, he talks about how he was reading the story of another hedge fund manager, who was running a statistical merger arbitrage fund. Hendry was deeply impressed by the intellectual rigour of the manager. When he was considering an investment in an oil business, he even took an engineering course at university, such was his detailed knowledge of his positions. BUT, in 2008, both of those funds disappeared . "They had been driving too fast", as Hendry put it. He was also talking about how someone came to him with some fantastic insights on a pharmaceutical company. Hendy became excited about this, and instead of taking a 50bp position, he took a 250bp position. After investing, he said "and of course it had a profit warning and dropped 40%". He said that he had deluded himself with the notion that he had seen the future. He said that, in some respects, he doesn't want to know, he doesn't want to do stock research; he wants to have a trepidation where he doesn't want to know the complete picture. He would rather watch the charts like a hawk, and trade if it breaks down. His final words on hedge fund management: "proctrastination kills you in a business determined by risk".
Sunday, November 6, 2011
Diary: Sellers Capital
I thought it would be interesting to write further about Mark Sellers, a manager at Sellers Capital Fund. This whole post is dedicated to him.
Website
There is a 3-part interview and a bio at Investors Hotline.
Part 1: "average joe" should lower their expectations (time 09:12). If you're going to pick your own stocks, it's not that difficult even for the average person: look at really well run companies with good honest management teams and wait until they hit a 52-week low and buy a basket of 20-25 them, then just wait - not a Buffett level performance, but above average.
Part 2: avoid risk of permanent capital impairment - don't loose money! he doesn't go for the big winners. it's avoiding the losses that it important
Part 3: don't buy levered companies because they can go to 0 if you're wrong - it's a general problem with financials like banks . He said some of his big mistakes is selling too early, you're generally too conservative about the fair value
Bio: return since inception in Aug 2003 to Nov 30 2007 its was 34% pa.
01-Jun-2007: Wide moats, hidden assets
In an article in the FT, Sellers said he focussed on companies with wide moats and/or hidden assets. Most wide-moat companies are large caps because the moat allows them to grow large over time.
Hidden asset plays tend to be small companies with illiquid shares. They are harder to find because you can't screen for them, analysts don't cover them, they usually aren't currently very profitable, and can be hard to value. Examples: oil and gas leases not yet generating cash, old real estate listed at cost.
PRXI (Premier Exhibitions) is an example where you get it all: there is a wide moat, hidden assets, and it's cheap. In 1994 it was granted salvor-in-possession for the Titanic - meaning that it had exclusive rights to salvage the shipwreck, but it does not own the artifacts or the wreck itself. The market value of the artefacts is very high, and there is money to be made from exhibitions.
12-Dec-2007: TMF article
The Motley Fool USA has an article on Sellers, dated 12-Dec-2007.
Getting investment ideas: every company we buy has a problem with it, otherwise it wouldn't be cheap. The first thing to do is figure out what the problem is. 90% of making money in stocks is not losing it, so you have to know how the problem can be solved.
Judging management is very important.
Don't take bankruptcy risk.
11-Oct-2008: Quitting
An article in Seeking Alpha reports that Sellers is to quit the hedge fund game because of the psychological toll. Presumably it is due to the losses (see below). The author speculates that Sellers violated Buffett's first and second rule (don't lose money).
19-Nov-2008: 49.9% loss
In an article by FIN Alternatives, it was noted that the fund made a net loss of 49.9% in Q3, after having gained 65% in H1. Hmmm.
28-Oct-2009: PRXI overvalued?
An article in Seeking Alpha says that Sellers got PRXI wrong. "He goes on to say that the market value of these artifacts is in the hundreds of millions of dollars. Where Mr. Sellers made his mistake was in his presumption that Premier OWNS the artifacts. ... Mr. Sellers didn’t do his homework and incorrectly valued the business based off its assets, which technically aren’t theirs. This goes to show why it’s so important not to buy a stock just because your favorite investor buys the stock. Sometimes they are wrong."
The author says, further:
06-Sep-2010: Risk first, return second
An article reports the following: We look for stocks that have at least 3 times as much upside potential as they have downside risk. So, for example, if the worst-case scenario fair value for a stock is, in our estimation $24, and the current market price is $30, that's 20% downside risk. If we are wrong, we lose 20%. So we need to feel comfortable that if we're going to risk losing 20% on a stock, we expect to make in a reasonably likely scenario, 60% or more. As such we would only buy this stock if the fair value in a likely scenario was $48 or higher.
22-Nov-2010: Grand Rapids
An article reports that Sellers owns the bars Hopcat, Stella's Lounge, and Viceroy. Bizaare. It further reports that in Jan 2009, Sellers won a battle against incumbent directors at PRXI - apparently the company was headed for bankruptcy. "In retrospect, I wish I hadn't gotten involved in the company. If I can get out of it and break even or better, I'd have to say that's a big victory".
Today: Does anybody know?
So, was Sellers a genius investor, or just lucky? Aug 2003 to Nov 2007 is not what I'd call an extended track record. It was a period (almost presciently so) where there was a great run-up in the Dow during that period. I hope the chronology was interesting to you.
Website
There is a 3-part interview and a bio at Investors Hotline.
Part 1: "average joe" should lower their expectations (time 09:12). If you're going to pick your own stocks, it's not that difficult even for the average person: look at really well run companies with good honest management teams and wait until they hit a 52-week low and buy a basket of 20-25 them, then just wait - not a Buffett level performance, but above average.
Part 2: avoid risk of permanent capital impairment - don't loose money! he doesn't go for the big winners. it's avoiding the losses that it important
Part 3: don't buy levered companies because they can go to 0 if you're wrong - it's a general problem with financials like banks . He said some of his big mistakes is selling too early, you're generally too conservative about the fair value
Bio: return since inception in Aug 2003 to Nov 30 2007 its was 34% pa.
01-Jun-2007: Wide moats, hidden assets
In an article in the FT, Sellers said he focussed on companies with wide moats and/or hidden assets. Most wide-moat companies are large caps because the moat allows them to grow large over time.
Hidden asset plays tend to be small companies with illiquid shares. They are harder to find because you can't screen for them, analysts don't cover them, they usually aren't currently very profitable, and can be hard to value. Examples: oil and gas leases not yet generating cash, old real estate listed at cost.
PRXI (Premier Exhibitions) is an example where you get it all: there is a wide moat, hidden assets, and it's cheap. In 1994 it was granted salvor-in-possession for the Titanic - meaning that it had exclusive rights to salvage the shipwreck, but it does not own the artifacts or the wreck itself. The market value of the artefacts is very high, and there is money to be made from exhibitions.
12-Dec-2007: TMF article
The Motley Fool USA has an article on Sellers, dated 12-Dec-2007.
Getting investment ideas: every company we buy has a problem with it, otherwise it wouldn't be cheap. The first thing to do is figure out what the problem is. 90% of making money in stocks is not losing it, so you have to know how the problem can be solved.
Judging management is very important.
Don't take bankruptcy risk.
11-Oct-2008: Quitting
An article in Seeking Alpha reports that Sellers is to quit the hedge fund game because of the psychological toll. Presumably it is due to the losses (see below). The author speculates that Sellers violated Buffett's first and second rule (don't lose money).
19-Nov-2008: 49.9% loss
In an article by FIN Alternatives, it was noted that the fund made a net loss of 49.9% in Q3, after having gained 65% in H1. Hmmm.
28-Oct-2009: PRXI overvalued?
An article in Seeking Alpha says that Sellers got PRXI wrong. "He goes on to say that the market value of these artifacts is in the hundreds of millions of dollars. Where Mr. Sellers made his mistake was in his presumption that Premier OWNS the artifacts. ... Mr. Sellers didn’t do his homework and incorrectly valued the business based off its assets, which technically aren’t theirs. This goes to show why it’s so important not to buy a stock just because your favorite investor buys the stock. Sometimes they are wrong."
The author says, further:
Premier has been increasing their spending at the same time as bringing in less revenue. After I finished my valuation of the company, I believe the fair market value of the firm is $0.26 per share. The company is currently trading for $1.16 per share.An update to the article is:
Premier had to agree to NEVER sell those artifacts or dispose of them in any way. Regarding all artifacts salvaged after 1987, U.S. Courts ruled that Premier could have exclusive salvage right to them but DID NOT grant Premier ownership of those artifacts. ... Therefore, the asset related to the Titanic artifacts have no material value to the shareholders of PRXI.Ah, the joys of investing.
06-Sep-2010: Risk first, return second
An article reports the following: We look for stocks that have at least 3 times as much upside potential as they have downside risk. So, for example, if the worst-case scenario fair value for a stock is, in our estimation $24, and the current market price is $30, that's 20% downside risk. If we are wrong, we lose 20%. So we need to feel comfortable that if we're going to risk losing 20% on a stock, we expect to make in a reasonably likely scenario, 60% or more. As such we would only buy this stock if the fair value in a likely scenario was $48 or higher.
22-Nov-2010: Grand Rapids
An article reports that Sellers owns the bars Hopcat, Stella's Lounge, and Viceroy. Bizaare. It further reports that in Jan 2009, Sellers won a battle against incumbent directors at PRXI - apparently the company was headed for bankruptcy. "In retrospect, I wish I hadn't gotten involved in the company. If I can get out of it and break even or better, I'd have to say that's a big victory".
Today: Does anybody know?
So, was Sellers a genius investor, or just lucky? Aug 2003 to Nov 2007 is not what I'd call an extended track record. It was a period (almost presciently so) where there was a great run-up in the Dow during that period. I hope the chronology was interesting to you.
Saturday, November 5, 2011
Diary
Joel Greenblatt lecture
Some notes taked from the scribd article published in Dec 2005.
Buy:
More stocks worked out over one-year rolling periods, rather than two. 17-year annual return was 30.8%; using only the 1000 largest stocks, return was 22.9%.
Greenblatt's personal investment process
Look for value with a catalyst, so nice things happen sooner. Special situations is value investing with a catalyst. Try to figure out what "normalized earnings" will be in 3-4 years time. Ensure stock is cheap based on normalized earnings. 5-8 securities can make up 80% of portfolio. One position would be up to 30%. Concentration works well for "lazy" people. Always consider the downside. Usually spends one month or so to do research. For difficult situations, research could take months. If there is a great opportunity which wont last and they feel they understand it, they sometimes use "Ready, Fire, Aim!" [sic]. Has financials and utilities in the portfolio.
Considers EBITDA - MCX (maintenance capital expenditure) would be a better measure of earnings power, but can be difficult to calculate.
Dislikes shorting, saying that the long-short guys blow up every eight years. He calls it the "I got it! I got it! I ain't got it!" strategy.
Look for a big mess that seems too complicated, not well understood, not well followed, and requires too much work. Look for semi-complicated situations - the key is to identify what cuts to the core.
Prefer numbers over assessments of management. Bad signs are high salaries and insider selling.
Ignore the macro picture. Everything is cyclical. Values can always be found somewhere.
Ignore stock market prices and volatility - it's more important to be able to value companies.
There appears to be a movement towards high ROC comapnies. Low P/B have performed poorly over last decade. He doesn't know if/when the trend will reverse.
Greenblatt's secret to success is identifying situations (mainly corporate changes) which are not interest to the big players, but which offer a high upside potatnital.
Spinoffs
Greenblatt's favourite.
The intial price after the spinoff is usually unreasonably depressed, due to people jettisoning them. In corporate changes, determine where the interests of the insiders lie. A large stake in a spinoff implies high level of commitment. The credentials of the parent company are also important.
The spun-off company is generally some kind of drag on the parent company's valuation, and the spinoff usually even exciting, and may not even be that good.
Merged Securities
He warns against merger risk arbitrages (too many uncertainties, chance of being burned are high). Contrariwise, merged securities are more interesting. Often, the acquirer pays using bonds, preferred stock, warrants or rights. Insitutions typically shun these securities, and indivuals often quickly dispose of them. This drives down price.
Bankruptcies
The bonds, bank debt and trade claims of companies that are emerging from bankruptcies might offer opportunities. Care needs to be taken.
Restructurings
Invest after restructuring has been announced or when a company is ripe for restructuring. Analysts tend to drop coverage of these companies. Be sure you understand what's really going on, though.
Recapitalizations
Buybacks (aka recaps) [but he doesn't mention the scale of the buyback] create opportunities: it increases the leverage of the balance sheet, and the tax saving. "there is almost no other area of stock market where research and careful analysis can be rewarded as quickly and generously".
Some notes taked from the scribd article published in Dec 2005.
Buy:
- good: high ROC: EBIT/( net working capital plus net fixed assets)
- cheap: high UEY = EBIT/EV
More stocks worked out over one-year rolling periods, rather than two. 17-year annual return was 30.8%; using only the 1000 largest stocks, return was 22.9%.
Greenblatt's personal investment process
Look for value with a catalyst, so nice things happen sooner. Special situations is value investing with a catalyst. Try to figure out what "normalized earnings" will be in 3-4 years time. Ensure stock is cheap based on normalized earnings. 5-8 securities can make up 80% of portfolio. One position would be up to 30%. Concentration works well for "lazy" people. Always consider the downside. Usually spends one month or so to do research. For difficult situations, research could take months. If there is a great opportunity which wont last and they feel they understand it, they sometimes use "Ready, Fire, Aim!" [sic]. Has financials and utilities in the portfolio.
Considers EBITDA - MCX (maintenance capital expenditure) would be a better measure of earnings power, but can be difficult to calculate.
Dislikes shorting, saying that the long-short guys blow up every eight years. He calls it the "I got it! I got it! I ain't got it!" strategy.
Look for a big mess that seems too complicated, not well understood, not well followed, and requires too much work. Look for semi-complicated situations - the key is to identify what cuts to the core.
Prefer numbers over assessments of management. Bad signs are high salaries and insider selling.
Ignore the macro picture. Everything is cyclical. Values can always be found somewhere.
Ignore stock market prices and volatility - it's more important to be able to value companies.
There appears to be a movement towards high ROC comapnies. Low P/B have performed poorly over last decade. He doesn't know if/when the trend will reverse.
Greenblatt's secret to success is identifying situations (mainly corporate changes) which are not interest to the big players, but which offer a high upside potatnital.
Spinoffs
Greenblatt's favourite.
The intial price after the spinoff is usually unreasonably depressed, due to people jettisoning them. In corporate changes, determine where the interests of the insiders lie. A large stake in a spinoff implies high level of commitment. The credentials of the parent company are also important.
The spun-off company is generally some kind of drag on the parent company's valuation, and the spinoff usually even exciting, and may not even be that good.
Merged Securities
He warns against merger risk arbitrages (too many uncertainties, chance of being burned are high). Contrariwise, merged securities are more interesting. Often, the acquirer pays using bonds, preferred stock, warrants or rights. Insitutions typically shun these securities, and indivuals often quickly dispose of them. This drives down price.
Bankruptcies
The bonds, bank debt and trade claims of companies that are emerging from bankruptcies might offer opportunities. Care needs to be taken.
Restructurings
Invest after restructuring has been announced or when a company is ripe for restructuring. Analysts tend to drop coverage of these companies. Be sure you understand what's really going on, though.
Recapitalizations
Buybacks (aka recaps) [but he doesn't mention the scale of the buyback] create opportunities: it increases the leverage of the balance sheet, and the tax saving. "there is almost no other area of stock market where research and careful analysis can be rewarded as quickly and generously".
Friday, November 4, 2011
Diary: mfi, look, ardn, hvn
LOOK: Lookers - General Retailers - 54.1p/£208m
LOOK, the car retailers, has been getting a bit of interest from the value investing blogs. Valuhunteruk wrote about it yesterday, but I can't find offhand who else is interested in it. He cautioned about the lease situation, and I haven't factored that into my calcs. I calculate a ROC of 19.8% and a UEY of 19.4%, based on EBIT of 45m, TEV of 227.8m, EV of 232.4m (terms defined below). Pretty good - but remember my calcs are quick-and-dirty.
What the cat dragged in
Scanning down the list of heavy fallers on 03-Nov-2011, the following couple of companies caught my attention.
ARDN (Arden Partners) was down 17% on that day (ouch), but is interesting because it's now a net-net: market cap £8.9m against NCAV £11.5m. The Company's business consists of corporate finance, equity research, equity sales and market making activities. Arden Partners plc specializes in advising and provides corporate financing and corporate broking services medium and small sized companies across a range of industry sectors. The cause of the fall was a trading update: "the Company was meaningfully profitable after charging share based payments and restructuring costs although, it will be materially less than market guidance."
HVN (Harvey Nash Group) was down 11% on that day. No real news, except that it did speak out in an article in What Investment Trader: "The chief executive of Harvey Nash, the recruitment and outsourcing consultancy, has leapt to the defence of FTSE 100 directors as criticisms mount following a report that showed their earnings had increased 50 per cent in the last year." So there we go, apparently a 50% pay rise is quite reasonable. It caught my attention because it has an UEY = 17.0% (unleveraged earnings yield) and ROC = 57.5% (return on capital), which might be interesting to magic formula folk. I calculated EBIT = 7.3m, EV = 43m, TEV = 12.7m
LOOK, the car retailers, has been getting a bit of interest from the value investing blogs. Valuhunteruk wrote about it yesterday, but I can't find offhand who else is interested in it. He cautioned about the lease situation, and I haven't factored that into my calcs. I calculate a ROC of 19.8% and a UEY of 19.4%, based on EBIT of 45m, TEV of 227.8m, EV of 232.4m (terms defined below). Pretty good - but remember my calcs are quick-and-dirty.
What the cat dragged in
Scanning down the list of heavy fallers on 03-Nov-2011, the following couple of companies caught my attention.
ARDN (Arden Partners) was down 17% on that day (ouch), but is interesting because it's now a net-net: market cap £8.9m against NCAV £11.5m. The Company's business consists of corporate finance, equity research, equity sales and market making activities. Arden Partners plc specializes in advising and provides corporate financing and corporate broking services medium and small sized companies across a range of industry sectors. The cause of the fall was a trading update: "the Company was meaningfully profitable after charging share based payments and restructuring costs although, it will be materially less than market guidance."
HVN (Harvey Nash Group) was down 11% on that day. No real news, except that it did speak out in an article in What Investment Trader: "The chief executive of Harvey Nash, the recruitment and outsourcing consultancy, has leapt to the defence of FTSE 100 directors as criticisms mount following a report that showed their earnings had increased 50 per cent in the last year." So there we go, apparently a 50% pay rise is quite reasonable. It caught my attention because it has an UEY = 17.0% (unleveraged earnings yield) and ROC = 57.5% (return on capital), which might be interesting to magic formula folk. I calculated EBIT = 7.3m, EV = 43m, TEV = 12.7m
Thursday, November 3, 2011
Diary
Links from around the web
- Learn Austrian Economics - written by Tom Woods
- Benford's Law - using statistics to detect accounting fraud
- UK Retail Redux - valuestockinquisition looks at high-street retailing, and dislikes the sector on account of structural weakness, significant lease committments, questionable strategy and poor outlook for UK consumer spending.
- Crushed By Christmas - Motley Fook article on 5 companies that might go belly-up over crimbo: BSLA (Blacks Leisure), CC (Clinton Cards), HMV (HMV), JJB (JJB Sports), LMR (Luminar). These companies are plagued by declining profits, and high indebtedness. Two days after the article was published, LMR called in the administrators. So The Motley Fool called that one right. Amazing.
- Tea Leaves - Ken Fisher writes in Forbes, saying that another recession now would be historically unprecedented. The thrust of his argument is that the spread between the short and long term rates is positive rather than negative, and that job growth statistics is a lagging and not a leading indicator.
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