The Four Mystery Horsemen, Revealed…

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Aryzta, blind stock challenge, Glanbia, Greencore Group, intrinsic value, investor bias, Kerry Group, mystery stock challenge, stock picking, stock selection, stock valuation

Continued from here. A week ago, I set readers a mystery/blind stock challenge – to estimate an intrinsic/fair value for four mystery companies: Conquest, War, Famine & Death. Here’s the data table I provided:

First, let me thank all the readers who participated (by blog comment & email): Congrats, you took the time to stick your neck out & provided me with what I consider a meaningful set of fair value estimates. Second, without further ado, here’s a table of the 4 companies & their actual underlying data:

[NB: For the challenge, remember I normalised to 1 billion of revenue – i.e. applied factors of 20.8%, 39.4%, 78.5% & 17.4%, respectively, to each company’s revenue & additional data points (except CAGRs).]

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

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Conroy Gold & Natural Resources, Dragon Oil, FBD Holdings, First Derivatives, Greencore Group, Hibernia REIT, Independent News & Media, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Norish, TGISVP, The Great Irish Share Valuation Project

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.

Total Produce – A Fresh Perspective

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activist investors, Balmoral International Land Holdings, Carl McCann, empire-building, Fyffes, Greencore Group, intrinsic value, Irish shares, Irish value investing, private equity funds, share buyback, TOT, Total Produce, Warren Buffett

…

Total Produce (TOT:ID, TOT:LN) was one of my very first blog write-ups, back in Nov-2011 at EUR 0.39. [And I’ve written about it a number of times since]. Less than two years later, we’ve enjoyed a nice double on the stock – which is now trading within spitting distance of my original EUR 0.882 fair value target. This warrants a fresh perspective… But looking back, now I remember – even then, I offered up a very specific perspective:

So we’re talking a business that really runs itself, just what I like! Particularly as I don’t have great respect for management (except if you compare them say to Greencore Group (GNC:ID) management – whose shareholders may finally be put out of their misery with a potential bid, rumoured to be coming from Dubilier Clayton & Rice). Carl McCann is Chairman, while his brother David’s in the Chairman seat over at TOT’s ‘sister’ company Fyffes (FFY:ID), and neither is really a patch on their father Neil McCann (I was sad to hear he passed away recently) who joined Fyffes in 1948. I think of the crazy worldoffruit.com online effort in the v late 90s (which ‘…received a very positive reaction from within the produce industry and looks set to dramatically change the way in which fresh fruit and vegetables are traded across the globe…’), the lack of earnings growth in the past few years, the ludicrous de-merger of Fyffes, Total Produce & Blackrock (now Balmoral Int’l Land Holdings, whose shares subsequently collapsed & are now delisted), etc.

I also look at the excessive B/S Cash of EUR 89.6 mio, and I’m bemused (and slightly alarmed) to remember a colleague telling me many years ago his impression that having large amounts of Cash on hand appeared to give management the warm and fuzzies, and they appeared to enjoy playing the banks off against each other for deposits (and perhaps even some jolly currency switching). All very well, I confess I’ve been through all that myself professionally, but always felt frustrated at having giant hoards of Cash on hand to invest – in an ideal world, I knew the best thing for shareholders and Return on Equity was to have zero Cash and just come in each day and draw down/pay down on a Debt/CP facility. With TOT, of course, the obvious answer to this Cash is frequent execution of small/medium sized acquisitions across Europe (similar to what DCC (DCC:LN) has done for years in its Energy business) – considering the nature/scope of potential business acquisitions, I think there’s a marvelous opportunity here to hoover up cos and double their operating margins v quickly through cost elimination and economies of scale.

Then of course there’s the silent but deadly fart in the room…finally figuring out it’s time to swallow their pride and reverse the Total Produce/Fyffes break-up – a nil-premium merger is the obvious way to achieve this and I imagine could easily yield 2-3 years of decent EPS growth even if the underlying business remained unchanged. But kudos to management for the 22 mio share buyback last year…! I was impressed, can you please repeat?

TGISVP – H1-2013 Performance

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alpha, Alpha Portfolio, Beta Portfolio, Clontarf Energy, Continental Farmers Group, DCC, Elan Corp, Fastnet Oil & Gas, Glanbia, Greencore Group, Irish shares, Irish value investing, ISEQ, junior resource stocks, muppets, Petroceltic International, Petroneft Resources, portfolio allocation, portfolio performance, Smart Alpha Portfolio, Smart Beta Portfolio, TGISVP, The Great Irish Share Valuation Project, US Oil & Gas

Time to wrap up the mid-year review(s) – let’s finish with The Great Irish Share Valuation Project. To recap:

– A total of 73 Irish companies are included this year (same as last year – but US Oil & Gas (USOP:G4) & Fastnet Oil & Gas (FAST:LN) were subsequently listed, so I added them later in the year, increasing the 2012 total to 75).

– Each company’s been individually reviewed & valued, some time between Jan & May, and I’ve kept a record of all share prices (at time of evaluation) & price targets to properly assess performance.

– I’ve made no subsequent changes to the file, except: i) to adjust for DCC (DCC:LN) migrating to a London-only listing & for Petroceltic International (PCI:LN) consolidating its shares 1 for 25, and ii) Continental Farmers Group (CFGP:LN) will continue to be included at its GBP 36p takeover price (the Saudi bail-out came in the nick of time, just before the cash ran dry!).

– Since my TGISVP review/valuation phase was spread over 4 1/2 mths, we need to adjust our benchmark (the ISEQ) accordingly. Like last year, I’ll take the mid-point (in terms of companies valued) of this phase – i.e. Feb-25th – as the most appropriate start date for the index.

I’m bemused to see I’ve apparently become more bearish this year! Last year, I was bullish on 48% of all stocks, while this year that’s now dropped to 40%. But consider the unique nature of TGISVP, which includes an extraordinary selection of junior resource stocks, complete with assorted incompetents & cowboys! Not surprisingly, I’m bearish on pretty much all these rubbish stocks – so stripping ’em out, it’s fair to say I remain bullish on Irish stocks. 🙂 OK, perhaps a little less so today, but with the ISEQ up +17.1% in 2012 & another +16.7% this year, that’s no great shocker..!

2013 – The Great Irish Share Valuation Project (Part VIII)

Tags

Aer Lingus Group, Anton Bilton, distressed investing, equine DNA, Greencore Group, IMC Exploration Group, Irish shares, Irish value investing, ISEQ 20 ETF, iShares MSCI Ireland ETF, New Ireland Fund, Orogen Gold, Pension Deficit, Ryanair Holdings, Smurfit Kappa Group, TGISVP, The Great Irish Share Valuation Project, Uniq plc

Continued from here.

Company:   Greencore Group

Prior Post:   Here     (valuation, see here & here for commentary!)

Ticker:   GNC:LN

Price:   GBP 95.75p

Well, I guess my perspective on Greencore last year was horribly wrong..! I’ve long considered GNC a distressed company, but the market clearly disagrees. So much so, the share price rallied almost 70% in the past year – my price target (of GBP 32.5p) was certainly left choking in the dust! But if my distressed premise is correct – and, objectively, I can’t see how you’d disagree with me – this rally isn’t so surprising. What..?! But companies like this are always a binary proposition – they simply die, or they survive & maybe even thrive eventually. And if everybody still feels blithely happy about them, they present a temptingly cheap buy. Greencore’s also a nice scary reminder of how dangerous shorting can be – poor underlying fundamentals are often ignored far longer than you can take the pain…