Mea Culpa…


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Surely about time I address this post to readers – the majority of these mea culpas are genuine apologies, the rest are probably just a little cranky:

i) ‘Sorry I didn’t get to your email/comment sooner…’

I like to think I’m fairly good at keeping up with your emails & comments – well, most of the time! As I’m sure you know, if you neglect to answer an email immediately, it’s all too easy to lose track of it. There’s also a daily mountain of spam I have to traverse – at this rate, I should be ditching the investing lark, ‘cos apparently I could be making an easy million squid a day instead… [I must applaud the sheer persistence & inventiveness of the Nigerian people – so definitely an economy worth considering! Guaranty Trust Bank (GRTB:LI), anyone?] But hopefully I get to (almost) every email in the end, even if it takes a week or three – if I don’t respond in a timely manner, just ping me again.

Unfortunately, I tend to suffer from a ridiculously compulsive version of ‘If you don’t do it well, why bother doing it at all?!’ So emails invariably seem to demand a specific & in-depth reply – um, which I often have to get ’round to completing… Might be a good idea to keep track of some of my recurring reader dialogue(s), and summarize/respond to them more systematically here instead – we’ll see, perhaps it might offer up a couple of interesting insights for readers.

But please, keep ‘em coming, they’re much appreciated. Investing’s ultimately a pretty solitary activity, so ‘work’ socializing tends to be a more deliberate affair – emails/comments are a great opportunity each day to just hang out at the ‘water-cooler’ & shoot the breeze with fellow investors!

ii) ‘Sorry, yeah…actually, I did see that headline’

There’s obviously blogs out there providing excellent daily/weekly updates of the latest & most relevant news, weekly reading links, company & valuation updates, plus other interesting snippets & topics. Clearly, this blog isn’t one of them…

I’m definitely grateful for & awed by their industrious contribution, but personally I’m more than happy to rely on the fact you’re all reading & analyzing the same headlines as me! ;-) And from my perspective, individual headlines usually only add very incrementally to the mosaic of knowledge I already have about the markets, sectors & stocks I’m interested in. And in my defence, I also fall back on my Twitter account – I’ve somehow managed to accumulate an horrific 8,000+ tweets at this point, so surely there’s some interesting & contemporary tweets among them!?

iii) ‘Sorry I poured cold water on your favourite stock’

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H1-2014 TGISVP, Portfolio Performance


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Now, let’s take a look at H1-2014 performance for The Great Irish Share Valuation Project. The valuation phase (covering 80 companies) ran from Feb to May, so the mid-point of these posts (March-30th) is the most appropriate start date for benchmarking purposes. Since then, the ISEQ is down 5.8% (as of end-June), so any TGISVP out-performance will be doubly welcome…

Actually, the ISEQ’s recent decline has been even more pronounced – since its end-Feb high, the index is down 9.5%. [And we have a similar pattern with the UK’s AIM All-Share, down a whopping 12.7% since its March high. Clearly, the major indices have been performing very differently…I expect to revisit this divergence in my next post]. Despite that, it’s worth highlighting the ISEQ still managed a 3.5% gain for the entire first half – a nice reminder the Irish market seems to enjoy disproportionate first quarter gains nearly every single year.

OK, before looking at overall performance, let’s have some fun – who were the individual winners & losers to date?! [Remember, for each stock, we’re only looking at gains/losses since its TGISVP evaluation date (i.e. Feb-May), so these tables don’t necessarily reflect full H1 performance…though I’m sure there’s plenty of overlap!]. Here’s the Sewer Shit:

TGISVP H1-2014 Losers

This includes most of the usual suspects – junior resource stocks on their inevitable march to zero… Continue reading

TGISVP – End-H1 2014 Snapshot


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I expect to publish a performance-related post or two, but timeliness dictates I first take a closer look at what’s hot or not in The Great Irish Share Valuation Project. This year’s valuation phase was a 10 post epic stretching from Feb to May – so end-H1 presents a good opportunity to update share prices (plus some underlying valuation-related variables, primarily FX rates), and re-rank all 80 Irish shares in terms of their current upside potential. Obviously, I haven’t updated my underlying intrinsic valuations on the fly – that was never the intention – so pay close attention to any subsequent results & news flow for shares that might interest you. [But I generally find intrinsic valuations change slowly/incrementally]. I do have two last minute exceptions though:

Company:   Kentz Corp

Prior Post(s):   2012 & 2013 & 2014

Ticker:  KENZ:LN

Price:   GBP 926p

Well, this update’s pretty simple: Just a week ago, Kentz announced a recommended cash offer by SNC-Lavalin Group (SNC:CN) at GBP 935p per share. This seems to have taken the market by surprise, but it’s only an 18% premium vs. the 792p price target I published 3 months ago – arguably, one would expect such an additional control premium. I’ve even heard some PI mutterings about other potential bids… Yes, that’s always a possibility, but it doesn’t seem very realistic in this instance: With two other suitors rejected last year, I’m sure management explored all other possibilities before dropping their drawers for SNC-Lavalin.

Despite that, ideally I’d like to re-assess my valuation to determine whether a higher bid could be justified. But there’s been no subsequent results, except for a 10% increase in the company’s backlog (to $4.5 billion, plus a further $125 million contract announced in June). Which is clearly encouraging, but not much of a tangible basis for increasing my price target significantly. At this point, the most likely & logical price target is the recommended cash offer itself…

Price Target:   GBP 935p

Upside/(Downside):   1%

[NB: There are two other pending takeover offers to consider: i) A recommended share offer for Fyffes (FFY:ID) by Chiquita Brands International (CQB:US) – I expect this to close & already incorporated it into my 2014 FFY price target, and ii) a rejected share offer for Kenmare Resources (KMR:LN) by Iluka Resources (ILU:AU). I suspect KMR management (& shareholders?!) would prefer to go straight to hell, rather than accept this offer – unfortunately, the company’s current operating, cash & debt trajectory all suggest hell is actually a distinct possibility. I haven’t re-considered my much lower 2014 KMR price target at this point.]

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Universe Group – Some Fresh Perspective(s)


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I first published a write-up on Universe Group (UNG:LN) almost 2 years ago: A Universe of Stocks… This was back when the shares were trading at GBP 2.375p, after a long & relentless 9 year decline. At that point, despite the scary chart, I believed the company had finally reached an inflection point…

This perception wasn’t just built on hope value:  The core HTEC division was an obvious jewel in the crown, a new management team was already delivering on its promises, and (if necessary) the shareholder register promised potential activist intervention. The company’s substantial undervaluation was obvious – and its evolution from manufacturing & product sales to a software/transaction solutions provider, focused on increasing recurring revenues, promised significant intrinsic value upside potential in the future. Based on the company’s metrics at the time (adjusted for somewhat excessive debt), I pegged Fair Value at 8.4p per share. I also predicted its loss-making CEM unit would be closed down, or sold – contingent on that, I suggested a Secondary Fair Value of 11.0p per share was also possible.

Just 2 weeks later, the story took a big step forward. Universe announced a placing & a GBP 0.2 million loan issuance – initially for debt reduction, which I was pleased to see. Unfortunately, the resulting enhancement of intrinsic value was relatively small (in my opinion), whereas the dilution impact was substantial: UNG’s undervalued share price/market cap meant a colossal 63% increase in outstanding shares was required to raise just GBP 1.7 M of equity funding. Which knocked my Fair Value targets back to 5.1p & 6.8p per share, respectively. However, management also stated they were ‘exploring a range of options’ for the CEM business – which I took as confirmation it would soon be shut down/sold off, so I was happy to merge/average my price targets into a new Fair Value of 5.9p per share. Despite the dilution, this still offered a highly attractive 164% upside potential! Fast forward two years, the company’s made steady progress…

As expected, the CEM unit was sold in Dec-2012, followed by two strategic bolt-on acquisitions (Indigo & RST) in 2013. A new & updated product offering was completed in 2012 & enjoyed a very successful 2013 customer roll-out. Revenue reached a H2-2013 run-rate of GBP 18.6 M, vs. continuing ops. revenue of 10.5 M in 2011. And with the turn-around complete, the CEO Stephen McLeod departed in Sep-2013 to pursue other projects (Robert Goddard remains as Chairman) – to be replaced by Jeremy Lewis, an ex-investment banker & a technology/software company CFO/CEO for the past 15 years. The share price has also lived up to its potential – it’s now trading in excess of my price target, at 6.125p – that’s a 158% gain vs. my original write-up at 2.375p per share! In fact, the shares almost reached my original 8.4p fair value target, with a Nov-2013 high of 8.25p per share. Which begs the obvious question – what’s an appropriate fair value target for UNG now?!

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European Islamic Investment Bank – Tender Offer/AGM Reminder


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I hope readers were just as pleased (as I was) to note the recent tender offer announcement by European Islamic Investment Bank (EIIB:LN). Even if you’re not an EIIB shareholder, it’s an excellent reminder activism isn’t simply a bloodsport practiced by US hedge funds. All investors, large & small, have rights & responsibilities as the owners of the companies they invest in – and sometimes they need to insist their voice is heard by management…

I proposed such a tender offer to EIIB management in my Jan-2014 letter (with the support of Guy Thomas, Ali Al Shihabi & a number of other shareholders). Of course, this letter was a follow-up to my previous 2013 letter. Some might argue I’ve been far too sedate/polite in my activism – that’s understandable – I could definitely have taken a far more aggressive activist stance, but in this instance my approach reflected my underlying (positive) perspective on the business. As I’ve detailed before, I believe EIIB offers investors a compelling triple play on frontier markets, Islamic finance, and Middle Eastern oil wealth & resources. Unfortunately, in its previous incarnation, that potential was wasted…

However, the arrival of HBG & the appointment of Zak Hydari as CEO stabilized the business, led to the acquisition of Rasmala & re-focused operating strategy on becoming a leading GCC asset manager. Which has, to date, been a great success – not that you’d notice from the share price – Assets under Management (AUM) have doubled in just 2 years (to USD 1,176 million at year-end 2013, from USD 600 million in Jan-2012). This is clearly a high margin business, with attractive economies of scale, but that’s not yet apparent due to the restructuring of Rasmala/EIIB & the rapid expansion in AUM. Unfortunately, as things stand, it’s unlikely this operating progress/potential can deliver a decent return on equity for shareholders in the foreseeable future – because any likely return will end up swamped in a sea of equity! [EIIB currently has GBP 123 million of equity, mostly in cash & liquid securities].

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2014 – The Great Irish Share Valuation Project (Final – Part X)


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Continued from here:

[NB: Worth revisiting Part I if you’re a new reader, or you’d like a refresher on TGISVP & my approach to the whole project.]

OK, it’s the final furlong..! This should be my last TGISVP post – that will make it a grand total of 80 Irish companies, all covered in very random order since February. Except this last post – I deliberately withheld DCP:ID & ZMNO:ID ’til I got around to posting separate write-ups for each, plus I’ve only just added another 3 (recent) Irish IPOs. I also debated including 3 other vaguely ‘Irish’ stocks, but decided (somewhat arbitrarily) against them in the end…

[FYI, my 3 rejections were:

- Kennady Diamonds (KDI:CN):   Dermot Desmond has long been involved here – he currently owns a 17.5% stake & the Chairman Jonathan Comerford’s actually an investment manager with IIU. However, the company has no other Irish connections, and I’ve never noticed any kind of Irish PI/institutional following for the stock.

- Kennedy Wilson Europe Real Estate (KWE:LN):   KWE’s a new fund launched by Kennedy-Wilson Holdings (KW:US), focused on investing primarily in real estate & real estate loans in the UK, Ireland & Spain. While the fund’s already completed a chunky Irish acquisition, one would expect Irish assets will ultimately be the smallest component of the portfolio (considering the relative size of the UK/Spanish economies & property markets).

- Metro Baltic Horizons (MET:LN):  MET’s another of those funds launched back in 2006 – focused on property development in the Baltic States & St. Petersburg, and targeting a minimum 25% IRR. Aaah, those were the days, eh..?! Garrett Kelleher & Dermot Desmond/IIU (again!) originally backed the company (with a 27% stake between them), and after some farcical/fraudulent events along the way, the board’s now comprised of a senior IIU executive & two other Irish directors. MET has become a cash/litigation shell & a suspension of its listing’s now imminent – but we should hopefully see some new proposals (inc. a continuation of MET’s listing) from the board shortly.]

So, without any further ado – let’s dive right in & finish up:

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Zoom, Zoom…Zamano!


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Zamano plc (ZMNO:ID, ZMNO:LN) is a leading Irish/UK provider of games, videos, music, apps & other digital content to mobile users (D2C, Direct-To-Consumer), and mobile messaging/marketing solutions for businesses (B2B, Business-To-Business). It’s also terribly misunderstood & neglected – the share price is down 25% in the past six months (vs. the ISEQ up 4%). So, loath as I am, we should first tackle some:

Risks & Misconceptions

i) ‘They just sell ringtones?!’:   No, they sell all kinds of digital content. Especially to Millennials, whose attention span’s as fleeting as Lee Evans between twitches – which means they’re a perfect target for the cheap impulse buys Zamano offers.

ii) ‘Oh, and porn!’:   No. No. No, they bloody well don’t…

iii) ‘What about smartphones?’:   Zamano primarily interacts with users via SMS (plus MMS, WAP, etc.), so smartphones must be killing them, right? Er no, as Portio Research points out: ‘SMS is not dead. SMS is still the king…’. For Zamano, smartphones represent more opportunity than threat:

- The SMS share of the pie may shrink, but the pie keeps growing. More & more people are forgetting their laptops & and are now living online 24/7 via phones (& tablets) – they’re all a potential target market for Zamano. And smartphones have allowed the company to upgrade & customize its D2C content, and to migrate its advertising online, thereby enabling more effective customer acquisition. Like so many tech companies, ZMNO’s really a sales & marketing company – so management’s ultimately agnostic, they’ll embrace whatever technology(s) deliver the best revenue/profit opportunities.

- If that’s via apps, that’s OK too… Because people have to get paid eventually, free/dollar apps won’t hack it, especially when it comes to regularly updated content. Maybe in-game/app purchases & advertising become the norm, but I suspect we’ll see an inevitable migration (back) to a subscription model – a far more stable/valuable revenue stream for companies. Just look at the evolution of online music: Downloading’s dead now, streaming’s where it’s at…maybe even Apple’s finally got the message!

- As for Zamano’s B2B business, SMS will be an attractive marketing tool for years to come. I mean, when did you last read your spam email? But we all still love that little dopamine fix when a new text message pings…we can’t help reading it! For companies, SMS is a simple, immediate & compelling medium for reaching out & marketing to customers. Combine it with geolocation and/or mobile payment technologies, and it offers intriguing new opportunities.

iv) ‘Don’t they have a crap reputation?’:   Sure…if you want to believe the trolls. Yes, how dare they charge for that sub. you forgot about? Why don’t you complain about the skinny jeans you bought last week too, or the hangover you spent good money on last night? I blame the chattering classes – they tut-tut over the hoi polloi buying such chavtastic tat. Then we have nanny regulators like Comreg, who act like they’re waging a holy war to atone for the sins of the Irish banking regulator… Yes, Zamano has to compete with some dodgy rivals, but it also has a fiduciary duty to its investors. Shady practices might appear tempting, but when you consider the risks for a listed company…it’s never worth it. And because ZMNO’s listed (& highly visible), the regulator inevitably targets them first. I’m confident we can rely on management to maintain standards & compliance accordingly.

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Donegal Investment Group (DCP:ID)


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Time flies… I published my Donegal Creameries – Low Fat Diet write-up just over a year ago. Quite obviously, it’s been a successful call :-) :

Donegal Chart

In my original post, I referenced the closing DCP:ID share price (on Fri, May-3rd, 2013) of EUR 3.63. The following Tuesday (the Monday was May Day), the stock rallied 28%, before closing up 18.5% at EUR 4.30. [Another endorsement: My very first suggestion was a name change…which occurred just 2 months later!] A subsequent march higher, at periodic intervals, culminated in the stock doubling after 10 months (i.e. in Mar-2014). Since then, we’ve suffered a 17% retracement – so today’s EUR 6.00 share price seems like a bargain, eh?!

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2014 – The Great Irish Share Valuation Project (Part IX)


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Continued from here:

[NB: Worth revisiting Part I if you’re a new reader, or you’d like a refresher on TGISVP & my approach to the whole project.]

Company:   First Derivatives

Prior Post(s):   2012 & 2013

Ticker:  FDP:LN

Price:   GBP 1,070p

It’s been a wild ride for investors in the past year:  A year ago, FDP looked fairly valued to me – and for much of 2013, I wasn’t far wrong, with the shares clocking modest gains. But FDP took off abruptly in November…by January, the shares had almost doubled within 2 months & tripled within 6 months. With profits down in the interim results, I suspect this rally was more of a delayed response to FDP’s Aug-Nov news flow (with new contracts reported with Republic Wireless, the NYSE & ASIC). These all highlighted the capability & flexibility of the company’s Delta products/platform to deal with Big Data, both financial and non-financial. That’s a sexy pitch right now for investors & they responded accordingly… As usual, the mugs were the last to be sucked in – it’s no great surprise to see they’ve lost a third of their investment since January, with no particular reprieve in sight.

Even at these less elevated levels, I suspect the shares remain over-valued. While FDP continues to rack up attractive revenue growth, the rest of its accounts don’t paint such a pretty picture. Operating margins continue to compress (now between 11-12%), earnings growth is non-existent & the outstanding share count is mounting steadily. More troubling is the lack of operating free cash flow (cash generated from operations, less PPE & intangibles). However, this has been offset by residential property sales in the past couple of years – unfortunately, this source of cash should dry up fairly soon. Perhaps more troubling is the continued reliance on consulting (almost 75% of revenue), rather than software sales. This is in response to the industry’s need for further cost-cutting, consolidation & compliance, rather than renewed secular growth. But it’s 5 years now since the end of the financial crisis. Perhaps there’s more of the same work to come, but I worry it’ll dry up & the company will suddenly have a death valley to cross…before we see a genuine return to growth in the finance industry.

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