The Saga Continues…

Tags

auction house, China, emerging markets, fur trade, luxury goods, Russia, Saga Furs, SAGCV

‘Bout time I revisited Saga Furs (SAGCV:FH). Loyal readers will hopefully recall my original investment write-up, two years ago now:

‘Quite A Saga…’

And boy, that’s what it’s proved to be ever since… Wisely, I wrapped up my last post with a potential health warning for readers (& included a scary looking chart). At first, it seemed unnecessary, as Saga managed to rally 20%+ in the following two months (hitting almost EUR 50.00 a share, which was gratifying). I must admit, I certainly didn’t expect what came next…

Now, I should encourage you, please go back & read my original post – it provides useful background on the fur industry & Saga Furs, which I don’t plan on revisiting here. [And I’m ignoring an anti-fur movement that’s become increasingly irrelevant…but I should clearly highlight Saga isn’t a stock for everyone, though obviously it’s not a fur producer itself]. Let’s recap my positive investment thesis at the time:

• Triple Threat:  Saga Furs offers attractive exposure to three of my favourite things: Emerging Markets, Luxury Goods & Auction Houses.
• Supply:  European/N American fur production is highly regulated (& superior to Chinese fur), with supply constrained despite generally increasing prices.
• Demand:  High-growth/secular fur market trend in the past decade or so, driven by Western fashion/luxury revival & new emerging market demand.
• Resilience:  Despite a 39% post-crisis collapse in sales, Saga’s P&L stayed close to break-even. [Aided by inversely-correlated commission rates, which increase as sales decline]. Auction sales rebounded 78% the following year.
• Investment:  Significant percentage of Saga’s annual turnover is ploughed into expanding capacity, European/global fur lobbying, and the promotion of Saga Furs as a luxury brand.
• Market Share/Network Effect:  Now permanent agreement with American Legend & Fur Harvesters Auction to sell via Saga auction, thereby creating some of the largest fur auctions in the world & significantly improving Saga’s effective market share.
• Valuation:  Stock cheap in absolute terms, vs. long term earnings growth & an average adjusted operating FCF margin of 28.0%. Also cheap in relative terms, vs. auction house & luxury goods sectors.

Unfortunately, the perfect storm was ready to hit: Dec-2013 auction sales collapsed 76%, as prices & the number of pelts sold dropped precipitously. Despite the about-face, initially this seemed like a bit of a buyers’ strike really…brought on by a mild winter, sticker shock (after pelt prices doubled in 3 years), higher retail inventories, and signs of slowing Russian & Chinese growth. Looking back, we know better now. It did prove to be a temporary buyers’ strike (as I’ll highlight below), but clearly the December auction heralded a more serious & sustained market disruption – the Chinese crackdown on luxury gifts was just gathering momentum at the time, and Putin was on the verge of sending the Russian economy (& ruble) over a cliff by backing military intervention in Ukraine.

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The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part II)

Tags

blue chips, bubbles, bullish, China, don't fight the Fed, Europe, floating world, Greece, Japan, Nifty Fifty, quantitative easing, US

OK, I posted Part I a month ago (and here’s its prequel, Welcome to the Floating World…), so you may want to skim those posts again. [Especially as the world’s changed so much since then…what with the bond markets going crazy, Greece staying crazy, etc. 😉 ] To briefly summarise:

The central banks ‘control the price of money, and everything else is a function of the price of money‘, and post-crisis they embarked upon the greatest price-fixing experiment ever – an echo/amplification of the entire era leading up to the late ’60s/early ’70s. Consequently, sustained near-zero rates has meant there’s a wall of money that’s slowly but surely being forced into the equity market. And just like the early ’70s, investors have & will continue to exhibit a distinct preference for Nifty Fifty stocks, i.e. large cap/blue chip companies which guarantee (or at least offer the illusion of) predictable quality & growth in an uncertain economic & fiscal environment. Small & mid cap stocks may be neglected accordingly, but will probably end up getting dragged higher regardless.

As for liquidity, central banks will basically find it impossible to reverse the explosion in their respective balance sheets…Pandora’s Box is now open. And GDP growth may prove irrelevant – since positive/accelerating growth is likely to underpin/encourage market sentiment & valuations, whereas weak/negative growth will simply elicit fresh expectations of central bank stimulus. Most of all, regardless of potential rate increases (or bond market volatility), the absolute level of yields means stocks will arguably remain cheap at any price…

But I really don’t have to make the argument: If/when this bull market keeps marching higher, I have no doubt we’ll be spoon-fed all the erudite & compelling arguments we need to justify it, ’til investors can no longer help themselves & inevitably turn the market into a self-reinforcing bubble. I’m not saying this is necessarily a logical process (what bubble is?!) – but I am saying it could easily happen, plus I’m also saying it could well turn out to be unprecedented…

 [Again, it’s worth remembering two recent & very relevant quotes:

Buffett – ‘Everything is a function of interest rates. Interest rates are like gravity.’

Tepper – ‘Don’t fight four Feds!’]

So, what are the implications for my portfolio?

Quite A Saga…

Tags

auction house, auctioneer, China, emerging markets, fur farming, fur trade, Kopenhagen Furs, luxury goods, network effect, Origin Assured, Russia, Saga Furs, SAGCV, Sotheby's

It’s my 200th post – I’ve been saving up! These are a few of my favourite things…

i) Emerging Markets:   No surprise there, I recently posted a detailed write-up of my emerging (& frontier) markets investment thesis. They enjoy some key advantages – younger/faster growing populations (with far lower entitlements), labour costs that are a fraction of developed market costs, control of a major portion of the world’s natural resources, low/stable debt ratios, a 50% share of world GDP, and GDP growth expected to be twice that of developed markets. And all this is offered at a discount!?

However, all investors see is a slowdown in emerging market growth (a legacy of the financial crisis) vs. developed markets which are bouncing back (fueled on the crack of QE) – emerging markets have been punished accordingly. But you can’t escape the fact these markets will probably generate far superior GDP growth for years to come… As an investor, that kind of growth (& value) is exactly where you want to be. Unfortunately, emerging market stock-picking can be a daunting task! A short-cut is to seek out Western listed/managed companies with a majority of their revenues & profits in emerging markets – presuming they’re on sale at the right price, that is…

ii) Luxury Goods:   I’ve an enduring faith in human vanity & insecurity – luxury goods companies have long existed to satisfy those traits. By selling dreams, status, taste, style, heritage, exclusivity…basically wants, not needs. But needs can usually be satisfied at a fair price, while wants are often infinite & indifferent to price. Of course, this creates a v desirable opportunity for companies – high-margin annuity revenue streams.

Hitting The Century (IX – Property)

Tags

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:

Wexboy Readers Around the World!

Tags

Africa, BVI, China, Falkland Islands, Greece, Ireland, Malvinas, North Korea, Singapore, South African Property Opps, Tanzania, UK, Ukraine, USA

WordPress Stats. have been getting better & better – I’m impressed! Thought it would be fun to share some random info. on my Wexboy readership:

– Smallest:  British Virgin Islands. OK, shared with 13 other countries. Aren’t all the investment co/hedge fund managers in BVI? Surely more than a few would have come across my blog by now? What? Oh, you’re really in London (or NY) – the taxes are just dandy, but you don’t like the restaurants in BVI – ah, I see!

– Most Politically Correct:  Falkland Islands – yes, it’s also labeled as Malvinas! Yes, this was WordPress’ idea.