UK Asset Managers & Argo Group

Tags

% of AUM, Andreas Rialas, ARGO, Argo Group, asset managers, Charlemagne Capital, Dolphin Capital Investors, Ex-Cash Ratios, F&C Asset Management, Impax Asset Management Group, Investor Relations, Kyriakos Rialas, Miton Group, NAV discount, The Argo Fund, Third Point, UK

In April, I took a closer look at the universe of UK-listed asset managers. A key piece of research was a (relatively) simple analysis which focused on financial stability & market valuation – this study also offered a useful peer comparison with Argo Group Ltd. (ARGO:LN) (& see this recent post).

Frankly, the numbers (plus the rest of this post) speak for themselves, but let’s have a taste of the main highlights:

Name	Ticker		Net Cash/Inv as % of Mkt Cap
F&C Asset Management	FCAM		(23)%
Liontrust Asset Management	LIO		3.9%
Henderson Group	HGG		6.2%
Aberdeen Asset Management	ADN		7.9%
Jupiter Fund Management	JUP		8.4%
Polar Capital Holdings	POLR		16%
Ashmore Group	ASHM		18%
Miton Group	MGR		26%
Schroders	SDR		34%
Man Group	EMG		55%
Impax Asset Management Group	IPX		59%
Charlemagne Capital	CCAP		64%
Median			17%
Argo Group	ARGO		175%

It’s encouraging to see the entire sector now enjoys robust financial health. Only F&C Asset Management (FCAM:LN) is in a net debt position – all other companies sport net cash & investments on their balance sheets. But it’s also clear this healthy financial position is not the key driver of market valuations – for Argo’s peer group, net cash/investments only represents a median 17% of market cap. On the other hand, Argo’s $23.6 mio of net cash/investments amounts to a whopping 175% of its market cap.

Why I Read…

Tags

autodidactism, biography, bloggers, Blogroll, Bloomberg, fund managers, history, latticework of mental models, LSE, MOOCs, mosaic theory, Nasdaq, Niall Ferguson, reading, Ron Chernow, stock ideas, Ugg slut, Vanity Fair

[NB: I guess you might call this a companion piece to my February post, 'Why I Write...'].

The immediate & obvious answer, as with most things in life, is ‘What else would I bloody do…?!‘ But I have to admit, I’m an autodidact – always have been, always will be, ever since childhood – which unfortunately made organized education increasingly intolerable** the older I got. However, when it comes to investing, the odds are stacked in my favour – organized education doesn’t offer you a hope in hell of becoming a good, let alone a great, investor. As people often notice with regard to MBAs… [Again, I can't resist this classic!].

[** Hopefully, that all changes with the advent of MOOCs, which have the potential to offer interactive autodidactism. But don't believe all the hype - sadly, most people just aren't motivated enough to learn & study alone. In fact, they often have different priorities... Of course, if you're dirt-poor & living in a third world slum, you may be incredibly motivated - I think MOOCs present an amazing business/investment (& charitable) opportunity to bring Western education to emerging & frontier markets. Forget the hollowed-out state of manufacturing...the next generation of US college kids, plus their six-figure student loans, should be bloody terrified of the rest of the world potentially competing on far more equal terms...and far less pay].

Buffett perhaps said it best, as he often does: ‘But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich‘. He was highlighting EQ, rather than IQ, but also implicit in the quote is that education (at least in the traditional sense) isn’t required to get rich either – this is particularly true when it comes to investing. I scarcely need to argue the point – simply give me a couple of books, and a day or two of your time, and that’s really all that’s needed to teach you the essentials of investing. Seriously..!

While that crash-course would certainly provide a good foundation, it’s ultimately irrelevant – as I guarantee you it could take a lifetime (or never) to become a great investor. Gulp… So, is there anything to help with/change that? Actually, yes – c’mon, you know my answer:

Read, read, read & then read some more (’til you puke..!)

Portfolio Allocation (XIII – Alternative Investments)

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activist investors, Alternative Asset Opportunities, alternative assets, Argo Group, asset managers, catalyst, CLOs, correlation, distressed investing, Event Driven, hedge fund seeding, hedge funds, hedge funds of funds, Livermore Investments Group, mortgage hedge funds, portfolio allocation, proprietary trading, Raven Russia, Tetragon Financial Group, thematic investing, volatility

Continued from here.

For now obscure reasons, this series was originally called ‘Hitting the Century‘. At this point, I’ve bowed to the inevitable & given it a more sensible name. It’s still a v leisurely stroll through the topic of portfolio allocation. I usually touch on stocks I actually own quite briefly, as the main objective is to expand on the logic (& attractions) of my specific portfolio allocation. Also, since my approach to investing is better described as thematic rather than (say) geographic, I generally highlight a selection of stocks which may exploit particular theme(s). As a reminder, here’s the allocation pie-chart I’ve used for the series:

Hedge (7%):

Hedge funds were a far larger component of my portfolio. This reflected a gradual migration over the years from open-end funds (many moons ago), to closed-end funds & investment trusts/companies, and finally into hedge funds. This was accompanied by an increasing reluctance to delegate my investing & investments. [Which may surprise you, as investment companies still play a significant role in my portfolio. However, this tends to now reflect my delegation of a specific/specialist investment theme - or simply the selection of a fund itself as an attractive investment, due to the presence of a large discount/catalyst/etc.]. Hedge funds, however, appeared to potentially offer the magic combination of lower volatility/correlation & better long-term returns. Sure, maybe they’d under-perform a bull market, but who cared – they simply ignored down markets, right?!

KWG Kommunale Wohnen AG

Tags

BIW, Conwert Immobilien Invest, CWI, European sovereign debt crisis, German bunds, Germany, Grand City Properties, Hans-Peter Haselsteiner, home ownership, income/dividend bubble, Karl Ehlerding, KWG Kommunale Wohnen, Net LTV, residential property, Sirius Real Estate, Stavros Efremidis, Torsten Hoffmann

It’s six months now since I did a write-up on KWG Kommunale Wohnen AG (BIW:GR) (the ultimate post in a 5-part series). Actually, a recap’s in order here & probably the best introduction for this post:

Part I & II:   German residential property has been (recently) described as:

‘Perhaps one of the safest & most attractive asset classes in Europe, or even the world‘.

Its attractions include:

- Demographics:   German population growth is broadly neutral, but is experiencing pronounced trends in favour of urban migration, smaller households & increasing floor size per capita. Investor horizons are often limited when it comes to property – they’d do well to note Germany has the largest population in Europe, the 16th largest in the world & Berlin is the EU’s 2nd largest city with 3.5 million inhabitants!

- Supply & Demand:   Annual housing demand’s around 250-350 K pa, well ahead of housing completions which are now accelerating but only recently bottomed out at 175 K pa in 2009-10. Germany’s second-hand property also trades at a major discount - e.g. in Berlin, existing housing stock can be purchased at a 30%+ discount to new building costs.

- Home Ownership:   German home ownership is a lowly 46%, in stark contrast to the usual Western market rate of 60-65%+. This reflects the government’s long history of housing provision & rent subsidies/suppression, but in recent years authorities have increasingly opted for privatisation. Couple this with rising prices & rents, plus the desire for a safer long-term investment alternative (vs. equity/bond markets) – I think we can be confident of a slow & steady convergence towards Western home-ownership levels.

2013 – The Great Irish Share Valuation Project (Final – Part XII)

Tags

Buchans Minerals Corp, C&C Group, Donegal Creameries, Irish shares, Irish value investing, Kedco, Minco, Ovoca Gold, Petroneft Resources, Polymetal Intl., TGISVP, The Great Irish Share Valuation Project, Xtierra

Continued from here. This is my final post in the valuation phase of TGISVP - see here for my first 2013 TGISVP post. I’ve only 5 companies left to cover, including a new one suggested by a reader (Kedco, thanks!). [I rejected another - One 51 - as it isn't listed on a regular exchange]. Let’s begin:

Company:   Ovoca Gold

Prior Post:   Here

Ticker:   OVG:LN

Price:   GBP 11p

What a difference a year makes, eh!? Last year, I was pretty bullish on Ovoca & its story (perhaps less so on its valuation, but I still saw a reasonable 39% upside). Wow, I even made a $2,000 call on gold (not that I was interested in participating)… However, a couple of months later, I rapidly lost interest in Ovoca as the Russians took over, dodgy loans started popping up on the balance sheet, and their American CEO abruptly resigned & sold his stake. It also made me realize Ovoca isn’t remotely an Irish company any more – in fact, I seriously considered kicking it out of TGISVP. But it’s still an Irish-listed company – so let’s hold our noses & take a closer look.

EIIB – Closing The Value Gap

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% of AUM, AUM, EIIB, European Islamic Investment Bank, frontier markets, GCC countries, Investor Relations, Islamic finance, MENA, NAV discount, Norges, Rasmala Holdings, share buyback, Sharia'a, Zak Hydari

In mid-April, I realized it was a full year since I’d last posted about European Islamic Investment Bank (EIIB:LN). No real neglect on my part (EIIB is now a Top 3 holding for me), but simply an undimmed confidence in their underlying story & intrinsic value. A fresh write-up made sense (esp. with 2012 final results due for release), as I suspected EIIB would be a brand new & interesting stock for a lot of (more recent) readers. [The stock actually rallied +15% in the week after my post].

The results speak for themselves, and received an enthusiastic reception from current & prospective shareholders. [EIIB shares are now up +27% since my last post]. These are the first set of results to properly illustrate EIIB’s new asset management strategy, its operational turn-around & progress to date, and the exciting potential of the MENA region. Again, see my prior post, but I definitely encourage you to read the full set of results – or even better, the entire annual report! Let’s divide the rest of this post into four sections:

Highlights:

- Assets under Management (AUM) increased +53% to $922 million, including a mandate win from Norway’s sovereign wealth fund

- EIIB & Rasmala staff/operating expense costs were basically halved - ahead of forecast, with some further efficiencies targeted for 2013

- Underlying business operating near-breakeven (GBP 0.6 mio pre-tax loss, exc. write-downs & discontinued ops.)

- A reduced GBP 13.3 mio in legacy assets targeted for an orderly exit

- Balance sheet risk continues to reduce, with 75%+ of assets invested in cash, deposits & fixed income, and liabilities limited to 25% of total assets

- Wholesale strategy confirmed, with new distribution agreements signed & existing relationships deepened. Re-iterated $3 billion AUM target by 2016

Also, this commitment from the CEO particularly grabbed my attention:

Donegal Creameries – Low Fat Diet

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activist investors, An Grianan, Camposol Holding, catalyst, dairy, DCP, Donegal Creameries, Glanbia, Ian Ireland, Irish shares, Irish value investing, Monaghan Middlebrook Mushrooms, Produce Investments, Ronnie Wilson, seed potatoes

Last week, I published a surprisingly popular post:  I identified myself as an activist investor, rather than necessarily a value investor (or, heaven forbid, a growth investor!). I meant this in the broadest sense – an activist investor sees a v different company & valuation to the one which currently exists (in the minds of most investors). That obviously implies a corporate transformation – and catalysts are a great way to ensure it occurs. Hopefully, you’ve noticed this approach in a number of my previous investment write-ups, but I also promised a brand new example! So, without further ado, let me introduce:

Donegal Creameries plc (DCP:ID)

OK, let’s just dive right in – here’s a snapshot of their last 5 years:

Ugh, that’s enough to make any investor lactose intolerant..! Revenues have declined 38% over the last 5 years – not surprisingly, cumulative operating profit (OP) is a puny EUR 0.5 mio, while net income’s not much better at EUR 3.1 mio. In per share terms, it looks worse: Net asset value (NAV) declined 12% – even if we add-back dividends, shareholders only earned 1% for the entire period. At this point, we can safely assume the majority of investors (value, or growth) have already discarded Donegal, probably for years to come, as a potential investment…

Hitting The Century (XII – The Distressed Consumer)

Tags

ATMs, consumer receivables, correlation, credit checks, debt agreements, discount stores, distressed assets, distressed consumers, distressed investing, European sovereign debt crisis, gold, healthcare, home shopping, life settlements, litigation, marijuana, Mosney, pawn shops, payday loans, pre-paid cards, scratch cards, student loans, sub-prime, trailers, unsecured loans, vice stocks

Continued from here (& here). In this post, we’ll turn our attention to the distressed consumer.

You may just consider this exploitation of the great unwashed – but in reality, they’re often the most expensive customers (pro rata) to acquire & service. (Illegal) immigrants also fall into this category – a fairly unavoidable cost of freight they pay in light of their status. [As US-listed Hispanic plays become increasingly touted & expensive, distressed consumer businesses are a cheap back door play on a sub-set of that population]. Also, the amounts involved with these customers is (inevitably) small. Actually, businesses are really targeting a much bigger & more lucrative opportunity – the democratic exploitation of an enduring human frailty:

Financial stupidity…

The obvious place to start here is with the usual vices – drinking, smoking, gambling, luxury goods… But these sectors are huge & everybody’s doing ‘em – I’m going to skip anything so mainstream (but I’m fascinated how highly rated they are!). I probably should consider drugs too, with marijuana access now increasingly legal & convenient across the US – but the real stupidity here might actually be investing in marijuana stocks!?

While I’m at it, we could make a case for including healthcare – people who make poor financial decisions surely make even worse decisions about their long-term health? [Especially with the communist approach to healthcare in the US & most other developed nations: All good deeds go unrewarded, and the worst 20% consume 80% of the resources... Which simply encourages everybody to race to the bottom (of the ice-cream tub). Look, I'm all for providing a safety net, but not when it's stuffed with cheese burgers!] Let’s skip healthcare as a whole other mess… In similar vein, a trillion dollars of US student debt could have mutated into the biggest distressed consumer play around – since everybody seems to have now decided they can’t/won’t pay any longer – but that’s underwritten by a suckered population also.

Right, let’s move on – picture you’re an average distressed consumer:

The Activist Investor

Tags

activist investors, catalyst, Charlie Munger, growth investing, Howard Marks, intrinsic value, latticework of mental models, mosaic theory, recapitalization, second-level thinking, shareholder activism, value investing, Warren Buffett

I’m obviously not averse to some growth – well, if I can buy it bloody cheap, or free – but I don’t think anybody would dream of calling me a growth investor!? But you may be surprised to hear I don’t consider myself a classic value investor either. Ideally (at least in relation to some investments), I like to think of myself as an activist investor.

In this instance, let me hasten to re-define activist in the v broadest sense: Activist investing isn’t necessarily about public engagement with a company’s management – far from it, in many cases. I believe the essence of activist investing actually lies in the investment analysis & the investment itself – not the investor (as many would presume). An activist looks at a company and, on that rare occasion, sees a v different enterprise vs. the company (most) other investors currently see…

- Perhaps he sees a company that’s genuinely worth more dead than alive. Or one that would be far more valuable in the arms of a larger rival. Or a company that has a jewel in the crown that’s obscured by other/inferior divisions, central costs, etc.

- Maybe it’s a company that has under-utilized assets that can be sold to reduce/eliminate excessive debt. Or a company that could execute a recapitalization, and transform its financial metrics & shareholder value.

- Perhaps it’s simply misunderstood – investors may simply not grasp a company’s management/business/strategy have changed in a major way, or they under/over-estimate the potential impact (for example) of some litigation or regulatory action.

2013 – The Great Irish Share Valuation Project (Part XI)

Tags

Barryroe, CRH, DGO, Dragon Oil, Fiordland, IFG Group, IFP, Irish shares, Irish value investing, Melrose Resources, PCI, Petroceltic International, Providence Resources, PVR, TGISVP, The Great Irish Share Valuation Project

Continued from here.

Company:   Petroceltic International

Prior Post:   Here

Ticker:   PCI:LN

Price:   GBP 6.3p

Last year, I correctly tagged Petroceltic as slightly over-valued. Despite that, I’ve been surprised to see the share price continue its decline in the past few months…because 2012 was a game-changing year! There were two key events:

First, Petroceltic closed on a GBP 170 mio merger with Melrose Resources in October. This was essentially a merger of equals (with PCI shareholders getting 54% of the enlarged company), and both companies possessed nicely overlapping portfolios in the MENA, Mediterranean & Black Sea regions. The key attraction of the deal, however, was the fact it was the merger of a producer & an explorer. This is an incredibly powerful combination in the hands of the right management team: Production can actually fund a company’s exploration plans on a self-sustaining basis. In this instance, pre-merger cashflows suggest operating cash generation (after interest & taxes) is now running around $155 mio pa post-merger, which nicely funds Petroceltic’s forecasted 2013 exploration & development programme.