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OK, a second year of The Great Irish Share Valuation Project is now complete – for reference, here’s my mid-year review, now it’s time for the real post-mortem!  Let’s take care of a little housekeeping first:

– Between Jan & May last year, I published individual reviews/valuations for 73 different Irish companies, and kept a file recording each share price (at time of evaluation) & price target to properly assess performance.

– Post mid-year, in Aug-Sep 2013, I published (& recorded) some additional reviews/valuations for 3 new Irish IPOsGreen REIT (GRN:ID), Keywords Studios (KWS:LN), and Ardmore Shipping (ASC:US).

– Since mid-year, I’ve made no other changes to my TGISVP file, except: i) Donegal Creameries (DCP:ID) changed its name to Donegal Investment Group (DCP:ID), while United Drug (UDG:LN) became UDG Healthcare (UDG:LN), ii) Kedco (KED:LN) changed its name to REACT Energy (REAC:LN), and also consolidated its shares on a 1-for-50 basis, iii) Grafton Group (GFTU:LN) migrated to a London-only listing, iv) Elan Corp (ELN:US) was acquired by Perrigo Co (PRGO:US), and finally v) TVC Holdings (TVCH:ID) paid its shareholders a EUR 0.495 special dividend.

– Since the (major) review/valuation phase was spread over 4 1/2 mths, my benchmark (the ISEQ) needs to be adjusted accordingly. I’m going to reference the mid-point (in terms of companies valued) of this phase – i.e. Feb-25th – as the most appropriate start date for the index.

Second, before we check out performance, let’s have a little fun surveying the Top Winners & Losers of 2013. [Note: These tables are solely based on each individual stock’s performance since its TGISVP evaluation date (i.e. since Jan-May, or Aug-Sep) – so they’ll differ from (but mostly overlap with) any other FY-2103 performance tables you’ve come across].

Here’s the glorious Top 10 Winners:

2013 Top 10 Winners

Wow, look at those figures, Prime Active Capital (PACC:ID) & Independent News & Media (INM:ID) look like long-lost twins! But I had very different opinions about them. PACC worked out spectacularly – it remains an ugly business, but still deserved a huge revaluation (bringing it within spitting distance of my EUR 0.132 target price). On the other hand, INM presented a v binary outcome… I chose defeat, but they managed to snatch victory in the end – raising EUR 40 million of cash, and substantially restructuring their debt & pension liabilities. In light of this, the year-end share price was not unreasonable (er, it’s rallied another 51% since!?) – but I have to wonder if they’re simply re-arranging the deck-chairs here, revenue trends remain horrible.

Greencore Group (GNC:LN) remains inexplicable. The company reported full-year revenue growth of just 3%, net debt plus pension deficit plus trade payables (net of receivables) totaling GBP 560 Million, and produced just GBP 31.6 M of free cash flow (vs. a prior GBP 42.0 M) – and GNC still manages to sport a GBP 941 M market cap & an estimated P/E of 15.2!? The rest of the table enjoyed generally well-deserved revaluations, plus healthy operational progress across the board – most notably First Derivatives (FDP:LN), which surprised me with some v impressive contract/news flow (for example, this deal with the NYSE Euronext). Kentz Corp (KENZ:LN) also rejected a number of bid approaches – quite rightly I believe – and quickly followed through with some hefty contract wins, and a significant acquisition (of Valerus FS).

And yes, beat me with a wooden spoon, I’ve no bloody idea how Karelian Diamond Resources (KDR:LN) managed to end up top of the charts!? Sure, they’ve released the usual positive news flow you expect from a junior resource stock, but ultimately nothing tangible. Plus the company continues to survive hand-to-mouth in terms of cash… Then again, as I write this, the stock’s up another +25% today – clearly it’s become a real muppet stock du jour.

Now here’s the (not so unexpected) Top 10 Losers – noting the Irish market’s otherwise spectacular performance in 2013, shareholders may finally want to question why they persist with this kind of rubbish…

2013 Top 10 Losers

Oh Jesus on the cross, what a sorry bunch…not worth talking about, eh!? Ah go on, let’s just mention two of ’em. I recall being loudly & roundly criticized for taking a negative stance on Providence Resources (PVR:LN). Sure, I’d love to see PVR turn into Ireland’s great offshore hope, but blind faith & patriotism play no part in valuing (or investing in) stocks. I was being kind anyway – my outrageous prediction of a 41% decline was bested by PVR’s actual 64% collapse. I still await the kind emails… And you must agree – there’s a certain poetic justice in seeing US Oil & Gas (USOP:G4), the biggest muppet trap of them all, come in dead last! Well, it’s a f***ing tragedy really, because I already wrote that play sixteen months ago…

OK, moving on, so how did the TGISVP portfolios perform?!

[First, here’s my usual reminder of how they were constructed:

TGISVP – Beta Portfolio:  Assume an investor goes equally long all 29 stocks with positive Upside Potential (e.g. invests EUR 1 in each stock, for a total of EUR 29). The other 47 stocks, identified as neutral (2) or over-valued (45), are ignored. The portfolio return contribution from each stock is simply its Gain/(Loss)%/29.

TGISVP – Smart Beta Portfolio:   Stocks are chosen on the same basis as the Beta Portfolio, with one twist: All 29 stocks are divided into quartiles, and assume EUR 4 is invested in each top quartile stock, 3 EUR in the next quartile stocks, down to EUR 1 in the bottom quartile stocks (for a total of EUR 74). This preserves diversification, but focuses the portfolio on stocks with the most Upside Potential.

TGISVP – Alpha Portfolio:   Same as the Beta Portfolio on the long side. But also assume a short overlay of all 45 over-valued stocks, with EUR (1) invested in each stock short. This essentially adds a second inverse Beta Portfolio.

TGISVP – Smart Alpha Portfolio:   Same as the Smart Beta Portfolio on the long side. Again, assume a short overlay of all 45 over-valued stocks. In similar fashion, we divide these stocks into quartiles, and invest from EUR (1) to EUR (4) (for the most over-valued quartile) in each stock short.]

TGISVP FY-2013 Performance Table

[Remember, the benchmark performance above is only from Feb-25th – the ISEQ’s performance for FY-2013 was actually +33.6%.]

Again, as with my last post, it’s been a game of two halves – but looking v different here… In H1-2013, my Beta portfolios trailed the benchmark – but since the index scored a single-digit return & we’re talking about an average 4 mth comparison period, that was never v relevant. On the other hand, the Alpha portfolios bounded ahead – on the back of a junior resource stock shorts pretty much across the board. Since then, we’ve seen a v different H2-2013 performance – though noting the remarkable index result, the FY-2013 outcome for the portfolios was actually somewhat predictable…

For 2013, the Beta & Smart Beta portfolios ultimately out-performed by +7.5% & +6.0%, respectively.

With most stocks gaining fairly indiscriminately, it’s not surprising there was little to gain from the differentiated weightings of the Smart Beta portfolio – in the end, they actually detracted slightly from its out-performance. However, my stock-picking made a v decent contribution. The stocks I ignored fell well short of the benchmark with a (simple average) gain of just 11% – while my longs enjoyed most success with (for example) UTV Media (UTV:LN), Bank of Ireland (BKIR:ID), Kentz Corp (KENZ:LN), CPL Resources (CPL:ID), and particularly Prime Active Capital (PACC:ID).

For 2013, the Alpha & Smart Alpha portfolios ultimately under-performed by (8.2)% & (1.4)%, respectively.

But in a market that was on fire, that’s exactly what one would expect from long-short portfolios – plus they still delivered highly attractive returns, in absolute terms. And if I’m permitted a small moan, I think it’s fair to say there was a little bad luck involved. Because the losses on Independent News & Media (INM:ID) & Karelian Diamond Resources (KDR:LN) were exceptional – the rest of my shorts actually delivered a positive contribution! [Albeit one comprised of a spectacular near-30% gain from junior resource stock shorts…mostly offset by losses from virtually all of the non-resource shorts]. Fortunately, in my Smart Alpha portfolio, increased short weightings in many of the v worst stocks clawed back most of this under-performance.

All in all, I’d say it was a pretty good year’s work…

And now here we are, it’s mid-January – I’m already behind, but still pondering whether I’ll take another run at The Great Irish Share Valuation Project in 2014. I obviously need to decide shortly – if you have any feedback, comments or suggestions, feel free to email me at wexboymail@yahoo.com, or just comment below. And best of luck for 2014!

For reference, here’s my TGISVP file:

TGISVP FY-2013 Performance

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