Stocks I will comment on below include KAR, VNL:LN, ILU, MAH, NAM, AIQ , TTS, AIK (code changed to COG ), SSM, UOS.
Last blog post I went into more detail than usual on a couple of stocks and I want to remind readers that the stocks I mention may suit me to hold, but are in no way recommendations. My portfolio and circumstances may be totally different to others and they may not fit into other investor’s objectives. It’s about sharing points of view here on this blog rather than giving recommendations to others. Whilst I don’t think I have the time to comment much on new individual stock ideas as I did in 2016, I would like to at least follow up on the stocks I blogged about in the past.
I only really have the time to scratch the surface with some of my brief notes on various stocks here, so that will be the limited nature of the blog sometimes. Many readers will have far more in depth knowledge of the companies I mention. I encourage anyone to offer any comments, especially with opposite arguments as I want to avoid confirmation bias.
I could change my mind tomorrow and sell all without noting anything on the blog so bear this in mind! My preference though is to do my best to follow the individual stock stories wherever I communicated that I had an interest in a company here in the past, until such time I cease to. Unfortunately, I cannot make any guarantees on this though, but that is the goal.
This is a long post under various stock headings so skip any you find boring.
KAR – It seems forever that KAR have been working on an acquisition that was stuck in the hands of the courts and now they are back to square one. I recently sold all my stake at an average of $1.51. Looking back at when I bought I thought Kentgrove Capital might shake things up a bit, but they have since sold. The cash backing is not quite as strong as when I first bought below $1.45 and the breakdown of this proposed acquisition is a setback. I feel most of the catalysts I originally identified are still there but perhaps not all.
The stock seems to be lacking a catalyst right now and could be the type that some investors liquidate in the tax loss selling season coming up. Now that I am out it will probably skyrocket! If it does drift towards the previous lows of $1.20 I might consider again.
VNL:LN – Early April, they released their quarterly NTA reporting showing a 3% jump in values and a major sale in the wind up process. From what I read the Vietnam property market looks quite strong and my suspicion is the NTA may be too conservative, plus the shares are at a discount to this NTA. Mid-May they announced another significant sale at a sizeable premium to latest book value. This has enabled them to conduct an off-market buyback for $US 40 million at a 15% discount to NAV. The stock has risen from 69 to 76 cents on the back of this news. The recent sale and buyback will increase the stated NAV, and I intend to hold this for a while yet. If anything, the trend with recent sales indicates that valuations may be conservatively lagging in a rising market.
This example may illustrate that you can sometimes find opportunities where perhaps management are not as great as you like. Upon mentioning this company in conversation with some well-connected investors in this area of the world, let’s just say their comments towards management were not that flattering. One theory I had was that management saw that the activists would get their way with a wind-up vote quite some time ago. Winding up a REIT can be a slow and patient process, but many investors want to see the results quickly. Management have put in place some incentives where they are leveraged to gain if they can achieve sales greater than book values over a responsible timeframe. Seeing the writing on the wall that they would lose the constitutional vote that existed to keep the fund going, I just wonder whether somehow some of the valuations around this time may have been too conservative. This would provide extra upside for management if that were the case. This intern may have led to a weaker stock price, but a better opportunity.
ILU – has received some positive press about the upside if BHP decides on its South Flank deposit as the answer for its Iron Ore production. Having said that the iron ore price doesn’t look that flash of late.
Their last production report seemed to be greeted well by the market and I continue to hold. Just this week they announced to the market an increase of the Zircon price. I also see that Paradice Investment Management have become a substantial shareholder. Sandon capital have been pushing the case to spin off the iron ore royalty. Firstly, I believe Paradice still boasts an excellent performance record so that is encouraging. Secondly, I know that one of Sandon’s strategies is not only to present their ideas to the management of the company, but also to spend plenty of time persuading other shareholders. Sandon & Paradice are both directors of the Future Generation Fund. If Paradice are also in favour of a spin-off it can’t hurt that they now have a substantial stake in ILU.
MAH – The Indonesian transaction was announced but not much fanfare in the stock at all. The volume was not that huge initially considering a major announcement like this. Volume has picked up in the last couple of weeks or so though. It will be interesting to see where the stock settles in a few weeks, perhaps some investors have been waiting to sell after this was announced. Happy to hold this for some time yet, even though a tad disappointed this news wasn’t viewed in a more positive light.
NAM – This has been like watching paint dry waiting for the corporate restructure. I am still a holder and showing a decent paper profit at least and hopefully these plans will see some liquidity in the stock. They did announce their full year results not so long ago and everything seems on track with the restructure, albeit gradually.
AIQ – Whilst AIQ has been a good story for me as a wind up play from many years ago, since I began the blog in early 2016 it has been quite disappointing. Another stock that is highly illiquid and you only remain in something like this generally with the view that someone will use the shell for another purpose to make the returns from current prices ok. I mentioned in the CYA post not long ago I am wondering if utilising tax losses via corporate restructures is getting more difficult which might make extracting value out of the AIQ shell also more difficult. There has also been a delay of a technical nature of the change in the RE which hasn’t helped. I still hold and it is the Dynasty Peak Fund (Geoff Wilson’s entity I think?) that has called the latest meeting to fast track the RE change so at least it appears someone is taking some sort of action rather than it continue in limbo like it has the last couple of years. But I don’t want to shy away from the duds on my blog, and it’s fair to say in a strong bull market this has been a disappointing hold over the last year. I don’t have too many concerns here though, as I see the cash levels within this company has risen quite a bit over the period. It shows that the illiquid funds they have remaining still are gradually turning into cash. The problem is just the size of this company is so small so administration expenses amount to too much, hence we need someone to quickly find a use for the shell rather than things to drag on as they have been.
TTS – I found it bizarre the board giving the consortium the big finger. It almost seemed like where an auctioneer had two keen bidders for a property and told one to leave the auction because he had a minor issue with his attitude. The light at the end of the tunnel may be that it means shareholders retain exposure to the lotteries business which who knows could receive some corporate attention down the track still after the merger. Perhaps otherwise the consortium could have locked in such upside at a reasonably low price. Global bond yields have fallen since I went into TTS which probably assists stocks like this with stable cash flows for the long term. I still hold here.
AIK / COG – For those not familiar Armidale Investments went through a name change and the former stock code of AIK is now COG. I last posted about selling half my position at 15 cents due to the size getting large from participating in rights issues and some uncertainty around their recently reported results. I went to the Sandon Capital presentation in Melbourne a few weeks ago and it seems like I am not the only one who viewed that the results could have been presented a bit better. Sandon owns plenty of stock and they fully understand the company, obviously my rough and dirty look at a stock cannot compete with their analysis. For that reason, I take some comfort that Sandon, NAOS and Wilson remain optimistic in the company as I rate these fund managers. Sandon remains confident in the company after their results, they just believe that shareholder communication needs to be vastly improved.
Perhaps luckily, since I sold half my position the stock has been a bit weaker and recently they announced yet another rights issue. I now have plenty of room to exercise my rights at 12 cents and fancy I may get a chance to obtain some by oversubscribing. I don’t have to make up my mind now but this is a possibility. Obviously, I shall watch the price closely in the lead up to the last few days of the rights issue closing.
As I write now though the price is quite weak so taking up the rights does not seem so appealing. By the same token the company has potential, they are certainly in an area ripe for consolidation. The banks have been so focused on the housing sector, which creates a good story for COG. It looks like I’ll probably just be sticking with a smaller position than I had a few months back.
SSM – About the same time I lightened up on COG as explained above, I did the same with SSM. It seems like a clever move with COG but not so clever with SSM! This has been one of my better stock selections ever, although I still have some mixed emotions about whether I have capitalized on this enough. I have had my fair share of big losses on the market, so it’s important to capitalize on the winners. I first entered this below 30 cents before I began blogging but was quite bullish during the start of this blog when it was only 52 cents. Unfortunately, I have sold some at around 80 cents, and then again around $1.10 since.
They traded quite strong just before the Easter break after announcing a further 2-year term with Vodafone Hutchinson Australia for providing wireless design and construction services, estimates based on historical revenues of $40-$50 million over the term. More recently they upgraded their profit guidance which is becoming a regular habit for these guys, and that has seen the stock move up above $1.40. I am getting gun shy to hit the sell button again!
I have heard and subscribe to the following theory about signals to look for when buying some companies. That is, that profit downgrades often come in threes. Don’t buy after the first one. Potentially after a few more downgrades a stock may be worth a closer look. Perhaps the stock strangely starts trending up after the third downgrade and that may indicate the worst has been factored in, and it could be a buy signal.
I am thinking maybe I should apply the reverse theory to above for selling one day, if that makes any sense. There might come a time down the track where they again upgrade their numbers, yet the stock trades a little weak. Perhaps then it means all the possible good news is factored in and it is time to look elsewhere. So far though with the latest upgrade, the stock looks quite strong.
I will keep holding the SSM shares I still have. I don’t make decisions based on tax reasons, yet don’t believe you should be totally ignorant of them in some cases. Here I may be effectively selling the stock more than 10% lower than it is trading if I decided to sell, because of tax payable. Given their latest guidance the P/E may be around 15, and the company may still have cash of about 10% of the market cap. Whilst the industry has its risks and it is not the bargain it once was, holdings on to this last relatively smaller remaining position size will not cause me any great stress.
UOS – (warning, more of a travel post)
I am writing this blog post from KL. I wouldn’t normally try to attend the UOS meeting here, but I had known for quite a while I was going to go from Melbourne to Vietnam on the 1st of June. As I fly via KL normally and knew the UOS meeting was close to this date I decided to spend some time here.
I also don’t want to overstate the “on the ground” conclusions I may come to. When working in the investment management industry I often felt economists would like to exaggerate the insight they may have gained overseas from simply their cab ride to the 5-star hotel for an overnight stay. But at least in this case, I saw that some good UOS developments really exist there, and the management are real and pleasant people!
UOS I felt was an opportunity a year or two ago, because I remarked on the blog the management don’t spend much time promoting the company. This creates some doubt for some, but the reason is they have their heads down spending their time successfully getting on with the business at hand.
If readers look at the hotcopper forum there is more information there that I would ever provide anyway. Forums like that can waste your time sometimes but the UOS discussion thread I find a bit more sensible than most. It has even been more balanced of late, many discussing some risks in the KL market. I think the KL market has its risks for sure. I am comfortable with the management though and will keep holding the stock. They will continue working hard (with minimal fanfare and don’t expect them to promote the stock), and this stock may require patience.
I only really brought UOS up as I am having an enjoyable stay at one of their hotels, the Capri, by Fraser hotel residences.
I don’t normally bother with positive reviews but this place was under $80 AUD a night. This included a free breakfast, so the way I enjoy my breakfasts, perhaps you can view the effective rate as much cheaper than $80 AUD!
The gym was nice, and I find it difficult to stick to a routine, so modern equipment with your own TV on the treadmill helps. They also have a rooftop infinity pool. Cooking facilities are in the room, but unfortunately for me I didn’t have access to someone who was a good cook. There is a large variety of restaurants and bars extremely close in proximity. The location may not be in the heart of where you may typically gravitate to as a tourist in KL, yet I see that as not such a bad thing. The direct train line into KLCC is a quick walk away anyway. Now that Uber is so widespread, getting around KL is so much easier compared to when I first came here if you want to take cabs rather than the train. Previously I found the KL taxi drivers and their fun and games with unconventional routes and broken meters annoying, but Uber is fine and very economical here now.
Here are some photos from the hotel.