It’s Time For A High-Low Game…


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Following on from my last post, I’ve been keeping quiet, but busy… My short term objective of raising cash was achieved, in spades – while I continued to trim a couple of minor/legacy positions, I was pleasantly surprised by two corporate events in quick succession:

i) Alternative Asset Opportunities (TLI:LN) announced a sale of its portfolio (see here & here). Granted, the board announced preliminary discussions in June, but after the drip feed of bad news & near-incompetence in the last few years, I had little faith they’d manage a sale…let alone a good sale! [Despite TLI’s NAV discounting a constant cycle of LE re-evaluations & a 12% IRR]. But in the end, they actually sold the policies at an average 6% NAV premium.

With most of the consideration now in escrow & a successful EGM approval, the company will shortly propose a wind-up to yield an estimated GBP 54.4p per share capital return (reflecting a 1.2191 GBP/USD rate) for shareholders. Counting 4p of distributions, that’s actually a 50%+ return vs. my original write-up almost 4 years ago…not too shabby an outcome, notwithstanding the upside I initially anticipated (& well ahead of the naysayers’ dire predictions!). Since the shares still trade at a discount, I’m in no rush to sell here, and I’m unconcerned about further FX volatility as I already consider TLI part of my dollar ‘bucket’.

ii) A takeover offer was also announced for another of my holdings. In fact, it had actually evolved into my largest position (yes, ahead of Zamano..!), as a result of continued/incremental purchases & sustained price appreciation – it was my best-performing stock YTD – in the end, the offer was just icing on the cake! Unfortunately, I could never quite catch up with it, in terms of nailing down an investment write-up – yep, apologies, it was an undisclosed holding – and it contributes nada to my portfolio performance here on the blog.

But hey, who’s complaining..?! 😉

On assessing the specific circumstances of the deal, I subsequently sold out of my entire position (actually at a premium to the offer).

Totting up all of the above, my total cash allocation (inc. TLI as quasi-cash) recently maxed out at approx. 25% of my entire portfolio – since then, I couldn’t resist pulling the trigger on a new starter position. [How often do you encounter a company consistently growing revenue at a 21% CAGR for a decade & a half, trading on a sub-15 P/E, and sporting zero ifs & buts?!] Which is probably a good start…as the second part of my near term game plan, i.e. Sep/Oct market volatility, is showing little sign of playing out here (um, never say never!?). In the end, Yellen genuflected to the White House & the September Fed meeting passed without incident, the November meeting’s an obvious non-event, and Trump may finally have pressed the self-destruct button once too often.

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Current Portfolio Snapshot & Allocation


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OK, the Olympics are over – time to focus, focus!

And these pleasant late summer markets might soon grow stormy

So it’s as good a time as any to offer up a current snapshot of my top holdings & portfolio allocation. Let’s begin with my Top Nine holdings, which follows on from my recent H1-2016 Performance post. [In this post/tables, since I made no incremental H1 buys/sells, the average stake for each holding actually equated to my year-end 2015 holdings…so eight months later, an update’s clearly overdue!]:

Wexboy Top Nine Aug-2016

[Current:  As of CoB 24-Aug-2016]

For your reference, in my last post, I included a paragraph (or two) of updated commentary for each individual holding. I also completed a similar exercise in my Top Tips post back in January. And just for completeness here, I’ll again provide corporate website & Bloomberg links, links to relevant posts/write-ups (remember, good investment theses tend to evolve slowly), plus the closing share price & market cap for each stock:

i) Zamano (ZMNO:ID, or ZMNO:LN) (9.3% Portfolio Holding):

‘Zamano…So, What Now?!’      (NB: First link = most recent post/write-up)

‘Zoom, Zoom…Zamano!’

Share Price:   EUR 0.113

Market Cap:   EUR 11.2 Million Continue reading

H1-2016 Wexboy Portfolio Performance


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Benchmark Performance:

Yeah, it’s that time of year again…and hopefully a chance to step back from some of this recent Brexit insanity. Let’s jump right in – here’s the H1-2016 performance of my usual benchmark indices:

H1-2016 Benchmark Indices

Of course, what jumps out immediately is the UK. Brexit schmexit…the FTSE’s performance is actually bang in line with long-term averages! Which reflects its predominantly international exposure, but the much-cited FTSE 250 certainly wasn’t much of a disaster at (6.6)%, while the AIM All-Share managed to limit its decline to (4.2)%. [Sterling took the real walloping, trading down 10-12% vs. the dollar & euro]. Unfortunately, this is a sad reminder the real risk of home bias for investors may not be portfolio return. It’s the fact they wake up to a shrinking portfolio…and suddenly realise their currency’s dumped, their housing market’s locked up (& their house value’s probably dumped too), not to mention their employment & economic prospects may also have dimmed substantially. [At least Brexiteers won’t notice the currency impact, since they seem to think only in terms of Mighty Blighty & The Pahhhnd In Your Pocket]. Only a fool would question (or ignore) the benefits of greater/global diversification in the face of such potentially existential risks – particularly as there’s no obvious long-term cost(s) to such a strategy.

At first glance, Europe has borne more of the Brexit brunt, with the Bloomberg Euro 500 significantly trailing the UK indices – down over 10% (which must delight the Brexiteers!). However, it’s worth noting escalating NPL/capital issues in the Italian banking system (& a mounting EU-Italy war of words) have been overlooked by the media recently (hat tip to The Economist though)…I suspect this is responsible for a significant portion of the index decline. Despite efforts to date, this crisis will require an expensive & long-drawn out resolution, and will probably continue to exert a significant drag on sentiment. Fortunately, it shouldn’t pose any kind of existential threat to the European banking system ultimately, at least for stronger banks & countries…Draghi & the ECB will presumably continue to do ‘whatever it takes’. But the ongoing compression in European banking valuations is puzzling – who the hell wants to bet & sweat over sub-0.5 P/B banks, when the cream of the crop remains on sale at 1.0 times book (or less)?! [And the US banking situation isn’t much different].

Perhaps the real Brexit victim here is Ireland, with the ISEQ suffering a 17% decline. Then again, with the market clocking an impressive multi-year string of gains (& a late-2015 double top), a correction was overdue…regardless of Brexit. [Hmph, so why didn’t I dump my Irish shares?!] Of course, now we have to figure out the medium/long-term consequences for the Irish economy & market – a challenge which I think nobody, no matter how authoritative, is qualified to tackle at this point. But anyway, let me throw my (initial) ten cents into the ring:

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2016 – The Great Irish Share Valuation Project (Part III)


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Continued from here:

Company:   Irish Residential Properties REIT   (IRES:ID)

Last TGISVP Post:   Here

Market Cap:   EUR 465 Million

Price:   EUR 1.115

Back in 2014, I was lukewarm towards IRES – it seemed cobbled together, and commercial property appeared to offer more obvious gains & investor interest. But since then, the Irish media (& in turn, certain politicians) have become increasingly hysterical about foreclosures, evictions*, mortgage rates, and the general housing crisis**. [*Apparently, a landlord deciding not to renew a lease is now deemed an eviction by some… **For overseas readers, it may be hard to keep up: The housing crisis no longer refers to the huge Irish price collapse…it’s now an appalling shortage of housing, just a few years later!?] We’ve also seen widespread criticism of the Central Bank’s new mortgage regulations…generally by the same people who criticised the Bank for its lack of regulation in the boom years!

Ironically, all this attention is fueling a continued rise in residential property prices (exacerbating the very housing ‘crisis’ they’re wringing their hands over!). Just as importantly, it’s re-directed investor interest – IRES is now the highest rated Irish property stock, in terms of premium to book. It’s certainly a unique story: IRES is already the dominant professional residential landlord* in Ireland, focusing on Dublin apartments, which perfectly captures an ongoing generational shift (as we’ve seen in the US) towards urban living, delayed marriage & kids, and an increasing preference to rent vs. own. [*Plus the only landlord with experience of N American apartment amenities & management – which offers interesting potential in what is still a relatively unsophisticated market].

Unfortunately, IRES hasn’t lived up to the promise of its prospectus. Touting gross rental yields of 8.6-10% & net yields of 6-7% was sheer fantasy…and a promised 4.5-5% dividend yield now looks problematic. As of the latest trading update, IRES has now assembled a (relatively new) 2,000+ apartment portfolio (costing 519 million & boasting 97% occupancy), with an LTV ratio of just 23% & an additional €200 million of investment/development capacity. However, the gross portfolio yield is now 6.2%, while the net’s just 5.0%…which is actually flattered by a significant portion of the portfolio being located in West/Southwest Dublin (i.e. Inchicore/Tallaght direction), which tends to offer higher rental yields but less potential for capital appreciation (vs. South Dublin, for example). But overall, the scope for capital gains seems compelling, noting particularly the recent 10-15% pa rent increases (albeit, interrupted by the recent heavy-handed two year rent freeze), though obviously this should already be reflected within the IRES portfolio valuation/yield & investors’ total return expectations – a 1.0 Price/Book ratio still seems appropriate: Continue reading

2016 – The Great Irish Share Valuation Project (Part II)


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Continued from here:

Company:   First Derivatives   (FDP:LN)

Last TGISVP Post:   Here

Market Cap:   GBP 494 Million

Price:   GBP 2,038p

My last write-up was bang in the middle of a sickening price reversal. While FDP got nearly sliced in half at the time, my price target’s been massively adrift ever since. Clearly, I was wrong to speculate FDP’s consulting business* might eventually grind to a halt – as banks continue to retrench, we’re actually seeing an increasing reliance on IT outsourcing, while reduced head-count & market evolution demanded ever greater technology capacity & automation. [*Let’s not forget consulting (64% of revenue) remains FDP’s primary business, and its margins are far less scale-able than software]. And revenue’s continued to forge ahead, at an average 28% pa in the last three years, assisted by FDP’s serial acquisition strategy (three new acquisitions & a consolidation of Kx Systems in the last 18 months, or so). Earnings growth trailed though, as FDP essentially bought revenue/technology (rather than profits…with new Big Data & IoT opportunities also being touted) & the share count’s been diluted almost 25% in the last couple of years. [Even on a revenue basis, those acquisitions look damn expensive – averaging over 7 times sales, vs. a 4.2 P/S multiple for FDP]. But FY-2016 was clearly a real gang-busters year, boasting 41% revenue & 33% EPS growth.

However, we’re still seeing a huge disconnect between EBITDA & operating free cash flow margins (Op FCF: Operating cash flow, less net PPE/intangible expenditure). But presuming software is the ultimate driver of the business, EBITDA will become increasingly relevant: A decent compromise for now is to use an adjusted margin, averaging the latest 19.9% EBITDA margin & Op FCF margin of 7.2% (noting a prior year margin of just 2.6%) – a 13.6% adjusted margin deserves a 1.33 Price/Sales ratio. And noting FDP’s financial strength (with net debt of just £15 million), we can adjust for (surplus) cash & also add a debt adjustment. [Based on this adjusted margin, I calculate another £23 million in debt (at an assumed 5% rate, for acquisitions etc.) would still limit finance expense to 15% of adjusted margin – as usual, let’s apply a 50% haircut, just to be conservative]. Of course, we also need to value FDP as a growth stock: While earnings growth has accelerated to 33%, we should still recognise the huge/ongoing disconnect vs. cash flow (& reported earnings, which are now about 40% lower than adjusted diluted earnings) – limiting ourselves to a 20.0 Price/Earnings ratio, based on adjusted diluted EPS, seems only prudent (or maybe even generous):

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2016 – The Great Irish Share Valuation Project (Part I)


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Um, apologies, the blog’s been quiet since early last month – though I’ve certainly been keeping up with readers via Twitter…Good Lord, I’m now up to 25K+ tweets!? Actually, I’ve been more than usually focused on stocks both old & new in my portfolio. Which seem to be increasingly bifurcated between special situation stocks where I continue to engage with/push management to enhance and realise shareholder value, and growth stocks (at the right price) where I can sit back & watch smart management compound shareholder value over time.

Hmmm, put it like that & growth stocks seem like the far more compelling choice..!? Though in reality, each presents their own unique risks/opportunities. And for me, somewhat perversely, one tends to inspire the other…dealing with recalcitrant management can inspire me to seek out smartly managed growth stocks, but actually seeing it done right, such companies also highlight the compelling value lurking out there just waiting to be tapped (sometimes, literally, overnight) if only management would come to their senses (or a third party steps in & does it for ’em).

Anyway, a little break’s a good thing – and we’re all feeling much better now, with most markets recovering their Jan/Feb losses this month. Hopefully, this new-found momentum will continue (at least ’til the usual ‘Sell in May & go away’ debate!), as markets generally remain flat/down over the past year – it’s been a tough period for nearly all concerned (spare a thought for those poor billionaire hedge fund managers!), clearly exacerbated by oil’s elevated volatility & influence.

And as promised, a good time to kick-off The Great Irish Share Valuation Project, with the ISEQ on a breather for the past year (down 0.6%) (but still over 40% off its all-time high, as set nearly a decade ago now), and the Celtic Phoenix offering more opportunity than ever… Long-time readers will be familiar with TGISVP (here’s my kick-off posts from 2012, 2013 & 2014), where I attempt to analyse & value every listed Irish stock out there (and usually piss off some tired & emotional shareholders in the process). The great thing about the Irish market is its size…one of the few globally (with about 70-80 stocks, in total) which actually presents investors with the opportunity to really get down & dirty with every single stock. And it’s a real stock pickers’ market, as I’ve previously highlighted:

‘And it’s worth noting brokers often segment the Irish market into very different sector/exposures. And so, accordingly, it tends to attract pretty dissimilar investor constituencies, who may only focus on: i) a handful of the largest caps, regardless of valuation & exposure, ii) stocks which (may) offer cheap/alternative access to overseas growth (a surprisingly large number of Irish companies are UK/Europe/globally focused), iii) stocks offering domestic exposure (notably, economic pure-plays are actually pretty rare), iv) a listed commercial & residential property sector that’s only emerged in the past couple of years, and finally (& perhaps most notoriously) v) a (junior) resource stock sector that’s been decimated in the last few years.

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Zamano – Time For A Dividend & Your Support…


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Here’s a recent letter I sent the board of Zamano plc (ZMNO:ID, ZMNO:LN) – it proposes the company now commence paying an annual dividend. I’m also now actively seeking the support of my fellow shareholders:


FAO:   John Rockett, Chairman
            Ross Conlon, CEO

Cc:      Pat Landy, NED
____- Colin Tucker, NED
______Fergal Scully, NED

zamano plc
3rd Floor
Hospitality House
16-20 South Cumberland St
Dublin 2


Pursuant to my last Zamano post, I want to thank Ross for responding to the shareholders who contacted the company regarding my annual dividend proposal. A number of shareholders have also contacted me directly to confirm their support – I now speak for 13.1% of Zamano’s outstanding shares. Noting this support & the upcoming Mar-10th release of Zamano’s final results, this is a good opportunity to write to you more formally & reiterate my dividend proposal:

– Zamano’s been profitable for the past four years now. Since 2011, the company’s revenue has increased by 55% to a €23.3 million annual run-rate, annual EBITDA has averaged €2.6 million, while annual free cash flow has averaged €2.5 million (for FYs 2012-14). This has now resulted in net cash of €5.4 million on the balance sheet, versus €4.4 million of net debt in 2011, a near-€10 million swing in the company’s financial position.

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Recommendation: Vote AGAINST the Argo Group Share Buyback Proposal


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Here’s the recent RNS from Argo Group (ARGO:LN), notifying shareholders of a March-3rd EGM seeking authorisation for a £2 Million Share Buyback & Rule 9 Waiver. [Here’s the actual EGM Circular]:

– Argo Group’s AUM has now declined by a cumulative 85% (to $166 million), the $3.5 million Argo Local Markets Fund remains its only new fund-raising (since the credit crisis), it continues to write-off virtually all the management fees accrued & owed (now totaling $6.2 million) by the Argo Real Estate Opportunities Fund, and it’s also tied up a majority of shareholder funds in illiquid loan & fund investments. Management’s obvious inability to stabilise & increase AUM, plus its wilful neglect of shareholder value, are clearly to blame here for the 50% collapse in Argo’s share price just in the last 3 years.

– Judging by local press reports (for example, here & here), Andreas Rialas originally received a substantially higher offer for Argo’s Indonesian refinery investment (TPPI), but ended up spending another couple of years negotiating (or refusing to negotiate) with Pertamina…to ultimately realise a far lower exit price for fund/shareholders. [Which is consistent with a near-25% write-down (in the last interims) of Argo’s stake in The Argo Fund].

– Pursuant to this letter, in 2014/2015 I introduced and/or referred to Andreas Rialas a number of trade & financial buyers who were interested in potentially acquiring Argo Group, its asset management business, or its fund investments. Since then, I’ve had no meaningful feedback or reason to believe he/Argo have seriously engaged with any of these potential buyers.

– The EGM Notice process was both unprofessional & inappropriate: While most investors learned of the Share Buyback from Argo’s RNS (released after close-of-business on Mon, Feb-8th), the Notice was actually posted the prior week & received by some shareholders on Sat, Feb-6th.

– The Indonesian sale & proposed return of capital is Argo’s first major value-creation event in a number of years. Some level of (prior) consultation with a representative group of external shareholders, plus some additional time to adequately consider & discuss the proposal, would have been appropriate.

Kenneth Watterson is a director since Argo’s original 2008 Admission. As is David Fisher, who’s also been an AREOF director since 2010. While Michael Kloter has a much longer history with Andreas & Kyriakos Rialas, Absolute Capital Management (which acquired Argo back in early 2007), not to mention Florian Homm (also, see here & here)…and received a post-Admission bonus, while billing Argo for legal services over the years. In aggregate, these directors have earned an estimated $1.4 million in total remuneration from Argo. I must say, I struggle to understand how they still qualify as Independent Directors..?!

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The Celtic Phoenix…Five Consecutive Years of Market Gains & 6.6% GDP Growth!?


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A picture’s worth a thousand words – here’s a 5 year chart of the ISEQ:


Truly, a thing of beauty…

And over the life of the blog, the Irish market has delivered four consecutive years of gains:

2012:   +17.1%

2013:   +33.6%

2014:   +15.1%

2015:   +30.0%

Cumulative Gain:   +134%

[And yes, the title of the post’s correct…the ISEQ also managed to eke out a small gain in 2011: +0.6%.]

And here’s the cumulative gains (over the same period) of the other major indices I use as portfolio benchmarks:

S&P 500:   +63%

FTSE 100:   +12%

Bloomberg European 500:   +46%

Wow, even the S&P’s performance looks positively pedestrian…

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