The wealth of knowledge
3 things I enjoyed reading this week, though it hasn't been a particularly investing-heavy one. Must be that mid-December celebration creeping up on me..
Valuhunteruk is back after wrapping up his blogging a few months back. This is great news as, as I mentioned when he left, his was one of the first blogs I read and contains a great deal more specific detail on any one equity than I ever go into. As far as I'm concerned, the more blogs the better, frankly, since they're rather neat ways of finding interesting stocks. The post I've linked is one on Clarkson, the shipping broker I was interested in a while back but never invested in. To excuse the horrible cliche, the investment case looks like a pretty classic value one - it's a business growing its market share in a market undergoing a horrible cyclical dip. There also appear to be the usual distracting side businesses detracting from the returns of the profitable core. The thing that makes me most nervous is pretty neatly summed up, too: "the very valid criticism that staff are very much in control in these kind of businesses". I find broking pretty strange businesses. They don't seem to really provide much for their brokers except the place to work and the brand name to work on. That's an oversimplification, of course, but still a difference from more traditional types of businesses, where the employees are one piece of an organisation far larger, and where their productivity is far harder to measure(and therefore they're in a much worse bargaining position).
No love lost
Private shareholder unrest & activism seem to be growing phenomena recently. That is rather unsurprising - I suspect the waxing and waning of public opinion on the management of the companies they own is at least a little subconsciously influenced by that which they don't have that much control over; the general economy and subsequently the share price. It seems unambiguously positive, though, at least from the point of view of another private investor looking on. Anything which reminds those running the business of their core commitments - to generate returns for the owner of the business, and not the other sideshows which sometimes get investigated - sits well with me. I still think the safest course of action is just to try and identify and avoid substantial conflicts of interest, though.
Anyway, as someone who's only ever contacted a company directly once - to moderate success - I wasn't exactly heartened by the nightmare tale at Valueprax. The post chronicles his attempts to speak to the 'board' of Solitron, a company whose name rings a bell from elsewhere on the American side of things. It's probably been discussed elsewhere, in the same way Dart Group is something of a recurring theme on this side of the pond..! Really interesting read, though I'm careful not to overgeneralise. It is their unusual reticence (and strange behaviour..) which makes it particularly interesting - and I recall some stories of private investors over here managing to call FDs of small caps to discuss their concerns.
Slightly more worryingly close is the ongoing saga at Cosalt, which I haven't researched but has been brought to my attention a few times over the last few months, always in relation to dubious management practice. As I say, I haven't verified, but the piece suggests Cosalt's CEO and dominant shareholder has been squeezing minority shareholders with his 50%+ stake, and employing some dubious practices to land him in control of the company for less than its fair value. Again, it's why I avoid dominant management stakes in small caps, but that shouldn't be taken as excusing the companies; simply a lack of faith that the regulatory system has what I would've thought were obvious protections to have in place for small shareholders.Continue reading
When to sell, what to buy
Two subjects that continue to elude me. Well, 'what to buy' is sort of an obvious one - all investors are concerned with putting their money to its best use and buying the asset that will yield the most over their investment time period but, the future being as it is, that field is an area for continuous self improvement. I think stockpicking is a skill I've rather improved over the lifetime of this blog - reading my thought processes from early days to now shows a fairly obvious development from the rigid application of principles with not much of an understanding, to a slightly more fluid application - with still not that much understanding! Oh well. Life would be boring if there wasn't much left to understand!
I still use screeners, but red's blog often throws up companies I know I couldn't find simply looking in my usual places. Precia SA, which he looks at here, is a French listed company which manufactures industrial weighing equipment. Its margins are good, revenue is steadily growing, and it has obvious growth prospects as it looks around the world. Probably a key part of that is that the products is produces are so vital:
Industrial weighing is important, and in some circumstances mission critical: imperfect weighing of pig iron will cost someone a lot of money; imperfect measurement in flavors and fragrances will lead to the manufacture of unusable batches; imperfect measurement of pharma dosages may cost lives.
What matters most, therefore, is not going to be price, but service and reputational quality.
Investing and Strategy
I haven't written a Friday post in a while, partly due to my volatile website and partly due to a lack of time, but hopefully I'll be back on the ball more regularly now. I'm not entirely sure what's happened over the last few weeks with regards to the portfolio, but apparently someone decided to turn the ignition on a number of the big stocks - notably Barratt, which I trimmed down at the end of last month because it was getting too large and to free up some cash, but has now promptly filled the void like one of those weird sponges with regenerative abilities. Not that I'm complaining!
Anyway, first things first, Philip O'Sullivan has a write-up on Harvey Nash which, while a stock I'm familiar with, apparently isn't one I've ever written about. I say apparently because I had to use the search function to confirm; I was sure I had! Anyway, it's a recruiter with some of the standard pitfalls you might associate with it - its primary profit-producing 'assets' aren't like cash on the balance sheet, or a nice sturdy factory. Rather, they have the annoying ability to get up and leave for competing firms; and the flexibility of labour often strikes me as a particular 'problem' in industries like recruiting, where the actual productivity of employees is rather easier to measure than, say, a marketing firm. Still, as Philip points out, this is a large and diversified company which is earning decent returns in what is - let's face it - hardly the best time for the industry. A P/E of about 6 on last year's earnings - though they're predicted to dip slightly - is pretty cheap, anyway. A stock I just revisited today, following a similar theme, is Impellam. I was deeply suspicious last time I looked at it, and it's pretty much flatlined since then though profits and revenues have continued to grow. This warrants a second look for next week!Continue reading
One step forward, two steps back
That's what it must feel like for shareholders in Victoria PLC, which is becoming a rather dysfunctional organisation indeed. I almost wrote a 'dysfunctional business', but that isn't really fair - the business seems to be rolling along, even if there are ongoing questions about its long-term profitability and returns on capital. No, rather, the battle is still going on in the boardroom as the previous requisitioners come back with a vengeance and once again launch into attempting another board shakeup. Katherine Innes Kerr has - if I can call it this - swapped sides this time, recommending the current board be maintained and re-elected. If you recall, she disagreed (after she had been parachuted into the board) with the new management's plans with regard to rewarding themselves for 'rescuing' the company.
I thought it had settled down, frankly, and that the company could get on with the business of trying to drive forward the changes they themselves wanted to make. Perhaps it's a little hopeful, but I wonder whether the whole process might have focused minds at the top level, had they actually had the chance to get back to it without more outside intervention. That theme - one of relentless trials - seems to have been irking Richard Beddard, who holds Victoria shares in one of his model portfolios:
In the eye of the storm, Bullock gives the appearance of calmly running the company.
If only he were allowed to…
Aside from the situation at Victoria, it's been a pretty quiet week for me and the portfolio; though I will end by saying a belated goodbye to Valuhunteruk, who posted last week that he was retiring from blogging. His was one of the first blogs I remember reading on investing when I got into that side of things, so thanks to him for always provoking thought and posting with detail and insight.Continue reading
A Round of Results
Four this week, which I'll briefly run over - 3 are in my portfolio, and one isn't but is a familiar name!
Cranswick's first period of the year provided no surprises, with sales up 7.4%. There's no direct reference to margins, but they do note that:
There were further modest increases in pig prices during the period, albeit they remain below the peak of last summer. The impact has been absorbed through increased volumes and continued operating efficiencies.
Which makes it sound as if, given no big jumps again in pig prices, margins should be at least stable at the levels seen last year. Debt is down through the group's cash generation, there's still a lot of headroom, and the company finalised the appointment of Adam Couch to CEO given the stepping down of the incumbent, Bernard Hoggarth. Couch comes from inside the company, with Hoggarth staying on part time, which probably says a lot about the business. No large movement in share price means I'll keep holding on to them. Though they're at the expensive end of my portfolio, they're hardly expensive relative to the wider market given their long and consistent history of profitability.
Creston reported a drop in revenues, more or less expected since the trend was reported not long ago by management. Frankly, there's not a great deal of meat or the statement or news - caution as usual given the environment. The slight dip in share price doesn't really change the bigger picture, which is that the company is cheap relative to earnings but has some question marks over a) how and whether profits will flow through to shareholders and b) how well they'll continue to hold up. The position I have is the smallest in my portfolio by a pretty wide margin.Continue reading