Newmark Security…A Real Steal!

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activist investor, Alexander Reid, catalyst, family firms, Marie-Claire Dwek, Maurice Dwek, Newmark Security, NWT, share buyback

[First, I should give a hat-tip to Universe Group (UNG:LN) – my first write-up, and this recent post particularly, may prove quite relevant here. Despite a significant retracement in the past year, UNG’s delivered a 125%+ return in the past two years, and I believe it continues to offer substantial upside potential. Which inspired me to seek out & research a number of other (relatively) similar companies…]

…And I came across Newmark Security (NWT:LN), which has been AIM-listed since 1997. Newmark’s a leading provider of electronic and physical security systems to ensure the safety & security of company personnel and assets. It has two divisions, consolidated around two companies which have been in business since the ’80s: The Electronic division (Grosvenor Technology, acquired 2002) – design, manufacture & distribution of access control and workforce management systems, and the Asset Protection division (Safetell, acquired 2000) – design, manufacture, installation & maintenance of bullet/attack-resistant screens (doors, walls, etc.) and cash management systems.

At first glance, a GBP 19 million revenue/9 million market cap company looks like a real tiddler in the security industry. But a client list (see here & here) which includes the Post Office, Tesco, Broadgate Estates, Network Rail, and the Met, plus relationships with Assa Abloy (ASSAB:SS) & Loomis (LOOMB:SS), all demonstrate Newmark punches well above its weight. And despite selling an OEM product range via value-added resellers & installation companies, an impressive 42%+ gross margin also attests to the quality of the company’s products, service & relationships (and the profitability of its niche). But why don’t we let the numbers do the talking…

I’ll tackle this in two stages, beginning with the six year period ending in 2012. [Note the April year-end – e.g. FY-2012 is the financial year ending Apr-2012. btw To highlight I’m not cherry-picking here, 2005-06 revenue averaged GBP 12.9 million (i.e. similar to the subsequent 6 yrs)]:

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So, Growth…or Value?

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Benjamin Graham, buy and hold, catalyst, growth investing, growth vs. value, investment theme, Joel Greenblatt, multi-bagger, Philip Fisher, reading, survivorship bias, value investing, Warren Buffett

Ah yes, the great investing debate & divide…

At one extreme, we have the wild-eyed growth investor foaming at the mouth over a great story. A silky-tongued CEO’s painted unicorns & castles in the air, and our reckless plunger’s itching to dance the magic rainbow. No price is too high, no management too sleazy, no risk too great, to deter him from the boundless opportunity he now sees stretched out in front of him… His investing idol’s Philip Fisher, of ‘Common Stocks & Uncommon Profits’ – which I had the misfortune of re-reading recently. How this book was ever nominated a bloody investment classic, I don’t know!? OK, let’s grant some credit. Yes, I’m sure Fisher was a gifted investor, but he was also in the right place at the right time – in California, at the dawn of the electronic (& venture capital) ages.

So, who’s ever sat down & really studied his book, and actually figured out how to bloody implement his 15 Points? Who among us has the time, the means, the resources, or the determination to practice 95% of what Fisher preaches? And where in the book is the real secret exposed – the foresight to pick a 100 or even a 1000–bagger? That’s the problem people forget with growth investing – survivorship bias. Consider a buy & hold investor seeding his portfolio with a selection of promising growth stocks – some die off quickly, most turn out so-so, but maybe one (or two) actually grow & grow to dominate his entire portfolio. Of course, the losers are long forgotten, and he’ll nod wisely & tell you he always knew the real winners! Or how about the chancer who bought a single long-shot stock…and ended up making a friggin’ fortune?! Well yes, he’s obviously a media darling now. But where are the stories about his fellow slobs who bet the ranch & lost everything? Well, like I said, the losers are long forgotten…

Not to mention the fact share prices of even the biggest winners usually suffer some pretty sickening plunges along the way. Of course, every growth investor’s confident he won’t be the sucker shaken out of his wonder-stock’s long-term parabolic trajectory by a mere trading blip. Learn from Black Monday ’87, he savvily reminds you – it’s a mere blip on the charts now! Yeah, but the average investor wasn’t calling it a blip then – he was too bloody busy selling…

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?!

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…

The Activist Investor

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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.

Catalysts – A Summary (Part II of II)

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activist investors, Argo Group, Avangardco, binary outcomes, Carl Icahn, catalyst, Daniel Loeb, Expected Value, government regulation, Herbalife, IRR, junk bonds, litigation, major sale, NAV discount, Risk Arbitrage, Robert Chapman, share buyback, shareholder activism

Continued from here.

iv) Activist Investors are my next catalyst. Obviously, there’s no specific timetable here, but since most activists are performance-driven hedge funds, a 6 mth to 2 yr timeline is reasonable. Activists in the UK usually target asset discounts & realizations (so investment trusts/companies are ideal), while European/US activists are perhaps more biased towards operational change (which may require a longer investment horizon).

Most activists prefer to agitate for change behind the scenes, but some prefer to be more public: Carl Icahn (I read King Icahn at least once a year) is the king of the activists – he’s 77 now, but is more of top of his game today than he was 30 yrs ago! Other notorious activists (& 13D filers) are Dan Loeb of Third Point (and here, though he claims he’s mellowed now!) & Robert Chapman, who (presumably!?) introduced the first ‘fuck‘ in an SEC filing. More in-depth reading material includes ‘Risk Arbitrage‘ by Wyser-Pratte, ‘Extreme Value Hedging‘ by Orol, and certain chapters of ‘Free Capital‘ by Guy Thomas.

Catalysts – A Summary (Part I of II)

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Alternative Asset Opportunities, asset allocation, catalyst, correlation, dividend tax treatment, Event Driven, Expected Value, fighting the Fed, Investegate, IRR, Liquidations, Margin of Safety, offer premium, portfolio allocation, QE, Recommended Cash Offer, Risk Arbitrage, risk-on risk-off, takeover offers, Takeover Panel, VIX, volatility, wind-down

My 10-part series on catalysts last year (stretching from Jan to Dec!) was well received, judging by the readership & links. I vaguely promised a summary to wrap up the series – as we’re well into the new year (already?!), it now seems appropriate to deliver that post (& hopefully it proves useful).

By the end of last summer, I concluded there’s little point fighting the Fed… A fortunate decision, as the market’s been decidedly risk-on since then! Though I must say, the power of central bank liquidity still surprises me. If you recall, last summer, we appeared to face a pretty bleak outlook both sides of the Atlantic: The fiscal cliff in the US & the sovereign debt crisis in Europe. [Hmmph, different stories…same destination!] Personally, I considered the cliff to be just like those periodic kerfuffles over the US debt ceiling – no genuine threat, but divisive political rhetoric could certainly roil the markets (& perhaps prompt a rating-agency response). On the other hand, the European crisis…er, what happened, where the hell did that go..?!

This risk-on attitude’s left my portfolio light on investments with shorter-term/lower-risk catalysts (i.e. event-driven investments). However, I still strive to pick new investments which (ideally) possess at least one longer-term/higher-risk catalyst. That type of catalyst doesn’t necessarily mean you avoid downside risk, but hopefully it stacks the deck in your favour vs. what the average value investment (complete with margin of safety) might offer. It may also accelerate the time-line for a stock’s realization of its intrinsic value/upside potential. Anyway, much of my event-driven exposure was ultimately re-invested in Alternative Asset Opportunities (TLI:LN) – so I simply exchanged a low return/relatively uncorrelated risk for a cheap/high return/totally uncorrelated risk! Go on, you might want to give it a try..! 🙂

Argo Group – A Shareholder Proposal

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% of AUM, Andreas Rialas, ARGO, Argo Group, asset managers, catalyst, distressed assets, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group Ltd. (ARGO:LN) has been a consistent Top 7 holding for me since launching the blog last year. It currently represents 4.9% of my portfolio.

It was among the first handful of stocks I wrote up late last year (here & here). I also included it in my Baker’s Dozen for 2012. I followed up with another detailed write-up in May-12. [btw An asset manager series later that month may add useful context: Parts I, II, III, culminating in a Fortress Investment Group (FIG:US) write-up]. I then briefly revisited Argo in Oct-12 as part of my catalyst series.

I was pleased to note recently my Argo write-ups have actually proved the most popular with readers. Which certainly isn’t reflected in the performance of the share price: ARGO is actually down 20% YTD! Considering the UK market’s progress this year, and based on reader/investor feedback, it’s reasonable to suggest some/all of this price decline might have been avoided…

This compelled me to write to Argo’s management a month ago with a number of recommendations to enhance shareholder value, improve investor relations & disclosure, and to increase Assets under Management. I’m pleased to see the letter would appear to have reminded new/existing investors of Argo’s far higher intrinsic value, and its potential – the share price has subsequently rallied +15%. It also garnered some v useful shareholder feedback & support, which prompted me to send this follow-up letter to Argo last week:

Hitting The Century (IX – Property)

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Asia, BIW, catalyst, China, commercial property, de-leveraging, emerging markets, Germany, Joel Greenblatt, KWG Kommunale Wohnen, NAV, Net LTV, Price/Book, residential property, Russia, Sirius Real Estate, special situations, SRE, Stockopedia, Ukraine

Continued from here.

Property (10%):

As with Agri, some of my recent posts will overlap. I should obviously point you to my series on German Residential Property, Post I to Post V – it offers an in-depth look at my allocation & stock selection approach to Property. This culminated in a recent stock-pick I’m v pleased with: KWG Kommunale Wohnen (BIW:GR), a 5.1% portfolio holding.

At EUR 5.475, it’s up +6% since my write-up a month ago (and +9% from my actual avg. entry price). It’s clearly left resistance at EUR 5.25-32 trailing in the dust, and the next EUR 5.60-80 resistance now beckons. A possible break of EUR 6.10-20 in due course may suggest the share’s ready to muscle its way far higher. It’s fascinating to note that price level corresponds to a KWG market cap of about EUR 100 mio: Which is precisely the level I highlighted as a possible sweet spot for the market to award KWG a significantly higher price/book valuation!

You know, I’m not much of a stock screener – I mean why ruin a day of reading annual reports instead?! 😉 But I do think property stocks lend themselves v nicely to a stock screening approach (Stockopedia, of course!) – there’s only a couple of key variables on which you really need to focus. In fact, let me suggest a stock selection strategy, a la Joel Greenblatt:

Owe Dear…

Tags

ARGO, Argo Group, catalyst, correlation, investing advice, portfolio allocation, Q&A

OK, dear readers, just a little post to keep track here… And to show I haven’t actually forgotten! I think I owe you some posts & emails at this point:

i) Q&A:   Recently, I’ve been getting more emails from readers with questions. Most noticeably from new(er) investors looking for investing advice – always a pretty tough request! I suppose I’ve got 3 answers:

a) I’ll egotistically suggest a read back through my posts. Even within specific stock write-ups, I’ve never seen the need to stick (completely) to the subject – so Lord knows where & if I’ve buried some useful advice on investing, portfolio allocation, risk management, etc… That’s the beauty of a blog, and a good principle in life – do what you bloody please! OK, I do mean (somewhat) sensibly, of course 😉 [This reminds me: A categorization of my posts might be helpful!]