Market update for 2016 beginning

Period 2nd half December 2015 written January 1st.

Asset Allocation

Physical cash has been raised slightly after deciding to exit some stocks whereby the macro environment could be making things difficult for them BSL, CYG, GMY & BOL. Refer to the spreadsheet for more detail, and note that these remain well and truly on the radar to buy on any possible panic selling on any further downgrades of profit guidance. A tax loss for me and a short term view that better entry levels may soon occur played a role here, i.e. I still see the stocks cheap.

Indices shorts were re-activated very close to year end. This time which I haven’t done for a while, half being in the ASX as this smelled like classic Christmas window dressing on light volume to me whilst the macro environment for Australia continues to worsen. The rally took the indices close to 8% higher from its recent low, moving up to 5,300 and below still the 200 mda which it has been for some time now. The other short is in the DOW making this an extra 9% of the portfolio to take off the physical 25% stocks weighting. Physical cash is 34% so this would take it to 43%, plenty of dry powder here. A stop loss sits at around 6 or 7% above current levels. This index is far more resilient than the ASX and chopping above and below the 200 mda but the market breadth is terrible for the US market. Nearly all stocks are generally trending down outside the much loved 10 or so big caps in tech, social media, bio tech. Shades of year 2000 here. However maybe it is shades of 98/99 hence the stop loss!!


I am 6% overweight in foreign currencies even though I feel I should be more. Preventing me is the mainstream press consensus for rising USD falling AUD. However I must stress I see this as only a minor barrier and possible catalyst for better entry levels. Note that in the bull market it was very much a consensus for the AUD to rise when it was uptrending to the mid 70s levels, and rise it did! I have orders to nudge my fx exposure up if it rallies from 73 to 74 cents where there seems heaps of resistance. Should it burst up through there I would look to try and get to 12-15% o/w eventually like I was nearer parity. I would see 80 cents just as crazy as above parity was given the destruction in commodities since. Property is looking shaky is banks are in tightening their books mode as they need to raise more capital if anything.

Individual Stock Decisions

Note the sales of BSL, BOL, GMY and CYG and spreadsheet commentary.


ACL – I initially purchased at 9.3 cents. Soon after I was pleased to see a $6.4 mill R&D tax refund which explains why Sandon capital was still accumulating above 9 cents. This brings the cash backing to at least 11.3 cents I believe. Shortly after they announced the capital return of 9.3 cents. To my surprise the stock was still offered at 9.6 cents. As I will get the capital return late Feb I was quite happy to make this more of a serious position and bought plenty more at 9.6 cents. With the tax losses and exciting sector it is in this could be a classic backdoor listing where someone may pay above the remaining cash backing for the shell with plenty of tax losses to utilise. Effectively my last purchase is like paying 0.3 cents for 1.8 cents cash plus plenty of value as a shell company for someone else. Sounds OK to me. They closed the year trading at 9.9 cents.

PTB was a new addition at 38 cents. KBC owns nearly 20% of this so have always glanced at it. It has made 2 profit upgrade announcements recently such that I think it is safe to assume to profit annually the next couple of years will be about a quarter of the current market cap. They may well be able to again pay a 5 cent fully franked dividend, subject to other big investors being willing to undertake a DRP. So the prospect in my SMSF for a double digit fully franked yield is interesting! The book value of the stock is above 80 cents. If it stays this cheap it may be in line for a management buy out as they own a lot of the stock.



Individual Stock News


PTB – Note that since my purchase above an owner of a 10% stake sold this at 49 cents, strangely though the stock is still around 40 cents on light volume. It may have gone somewhat unnoticed over the Xmas break so I will watch with interest if this gravitates to that 49 cent level which one may well logically expect.


SSM – This was purchased around 25 cents in May last year and just announced a 4 year agreement with the NBN. The dramatic rise means, particularly on this announcement Dec 21, the market cap is $180 mill now. Despite this it has no debt now and $20 mill cash which could climb another $20 mill in the year ahead. Will probably still yield over 4% fully franked, a P/E around 13 with very nicely growing earnings an industry not so sensitive to the economic environment. Will Keep holding.


BOL – As mentioned above I exited this at 8.8 cents after buying at 10 cents. After I sold they downgraded their guidance and spoke about the tough operating environment. They booked significant asset writedowns so the NTA in the 40s is now probably in the high 20s somewhere. It was only around a year ago the NTA was listed at above 50 cents. Also recently Forager funds management who I respect is now a significant shareholder. Despite the downgrade the stock is now 9.2 cents, whilst the ASX did bounce strongly in general since I sold. Perhaps the worst news was already factored in? With the NTA slashed so much I prefer a bigger margin of safety for this now. Having said that the stock’s ok reaction to the bad news and Forager being on board are some positives such that I would consider re entry if we test the recent lows again closer to 7 cents.


KBC – CEO Nicholas Bolton is in trouble again and now longer CEO. The stock initially traded weaker. Whilst I respect his investment ability I have always felt one reason why the stock trades at a discount is because the market views him as a shady character. Despite the stock being down, this could be a positive later on. It does not change the current positions, the NTA of near 22 cents which is going nicely. More importantly it increases the power potentially of other shareholders the Wylie group and Geoff Wilson who are more respected in the market which maybe a catalyst for discount compression.


ACL – As mentioned above we received the good news that the Tax refund was juicy and it will be a bumper 9.3 cents capital return. Pretty handy when that is all I paid for the first parcel. Anything else a nice bonus and I am sure I will get something.


UOS –Announced quarterly profit numbers and went 50 cents bid. Numbers looked excellent although admittedly the company structure and timing of profits on the development side are not simple to get a feel for. I will let the market guide me a bit I know there is a lot of stock for sale at 53 and 55 cents sometimes off the screens. The industry is often impatient so that does not faze me. Rather if I see a buyer wipe out this stock I might follow suit increasing my holding at the same price. It may provide added comfort the profit numbers are as good as I think. They are becoming quite cashed up and I note they did make a large capital return in 2011 when faced with a similar position. That would be bullish for the stock price in the short term if something like that happened, however this could be one to relax and hold for a very long time rather than worried about short term movements.


MEL – Pleasingly shareholders voted for the cash here and now we have a company with basically 7.1 cents in the bank trading at 5.5 cents, with Keybridge and many other shareholders determined to stop any waste. A capital return could be on the cards here. Initially at least a common sense share buyback has commenced.





  • Looking to effectively short AUD exposure if it continues rising above 73 cents.
  • More confident of ag stocks at certain levels although doubtful I will see them I want to be prepared. NAM and ELD I like the way they are moving and Milk interest is gaining media interest. On a general market downturn these levels are big support GNC 7.80, NUF 7.50, AAC 1.25.
  • Stay disciplined with indices short stop levels, lets not forget the narrow rally in the US late 99 early 00. I record these already assuming I have lost the money so easy to handle.
  • FSA more reading how this would fare in a negative environment, good because more customers but negative because they offer credit to them so writedowns? Read annual report.
  • Gold. Recently booked good gains on EVN, NCM and NST some partial sells. Theme has been Aussie gold producers had a fantastic 2015 but globally Gold stocks still massively depressed. Maybe room to go back in say a GDX, GDXJ? Arguably I should be a bit overweight in commodities (though gold an ag at this stage as complacency exists with economic recovery so still too early for many other commodities). Yet for stock specific reasons I have found myself just neutral long term range. Am also completing some research on OCG in the Os sector.


Leave a Reply