TGISVP – End-H1 2014 Snapshot

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Aer Lingus Group, Donegal Investment Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Kentz Corp, Norish, Petroneft Resources, Prime Active Capital, TGISVP, The Great Irish Share Valuation Project, Zamano

I expect to publish a performance-related post or two, but timeliness dictates I first take a closer look at what’s hot or not in The Great Irish Share Valuation Project. This year’s valuation phase was a 10 post epic stretching from Feb to May – so end-H1 presents a good opportunity to update share prices (plus some underlying valuation-related variables, primarily FX rates), and re-rank all 80 Irish shares in terms of their current upside potential. Obviously, I haven’t updated my underlying intrinsic valuations on the fly – that was never the intention – so pay close attention to any subsequent results & news flow for shares that might interest you. [But I generally find intrinsic valuations change slowly/incrementally]. I do have two last minute exceptions though:

Company:   Kentz Corp

Prior Post(s):   2012 & 2013 & 2014

Ticker:  KENZ:LN

Price:   GBP 926p

Well, this update’s pretty simple: Just a week ago, Kentz announced a recommended cash offer by SNC-Lavalin Group (SNC:CN) at GBP 935p per share. This seems to have taken the market by surprise, but it’s only an 18% premium vs. the 792p price target I published 3 months ago – arguably, one would expect such an additional control premium. I’ve even heard some PI mutterings about other potential bids… Yes, that’s always a possibility, but it doesn’t seem very realistic in this instance: With two other suitors rejected last year, I’m sure management explored all other possibilities before dropping their drawers for SNC-Lavalin.

Despite that, ideally I’d like to re-assess my valuation to determine whether a higher bid could be justified. But there’s been no subsequent results, except for a 10% increase in the company’s backlog (to $4.5 billion, plus a further $125 million contract announced in June). Which is clearly encouraging, but not much of a tangible basis for increasing my price target significantly. At this point, the most likely & logical price target is the recommended cash offer itself…

Price Target:   GBP 935p

Upside/(Downside):   1%

[NB: There are two other pending takeover offers to consider: i) A recommended share offer for Fyffes (FFY:ID) by Chiquita Brands International (CQB:US) – I expect this to close & already incorporated it into my 2014 FFY price target, and ii) a rejected share offer for Kenmare Resources (KMR:LN) by Iluka Resources (ILU:AU). I suspect KMR management (& shareholders?!) would prefer to go straight to hell, rather than accept this offer – unfortunately, the company’s current operating, cash & debt trajectory all suggest hell is actually a distinct possibility. I haven’t re-considered my much lower 2014 KMR price target at this point.]

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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.

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

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2P Reserves, Circle Oil, Cove Energy, Falcon Oil & Gas, Irish shares, Irish value investing, John Craven, Norish, portfolio performance, share buyback, TGISVP, The Great Irish Share Valuation Project, Total Produce, Townview Foods, United Drug

Continued from here.

Company:   Norish

Prior Post:   Here

Ticker:   NSH:LN

Price:   GBP 51.25p

Last year, I pretty much tore Norish a new one..! Which was certainly well deserved: They own 8 UK cold-storage sites, which they actively manage – all for a bloody return lower than they’d earn leasing them out!? Despite this, I still flagged them as offering 42% upside – a year later, they’re now trading right in line with my target price. And finally, something’s happening here…

In Sep-12, they acquired Townview Foods, a Northern Irish meat trading firm with GBP 16.2 mio of annual revenues & a GBP 1.0 mio operating profit. The management team appears to have been left in place, as ‘Townview will continue to operate as a separate business within the Norish Group‘. This is encouraging – the last thing needed here are Norish executives messing up what looks like a decent/stable business.

The Great Irish Share Valuation Project X

Tags

Fiomi Diagnostics, Galantas Gold, George Soros, John Teeling, Lisa B, Minco, NAMA, New Ireland Fund, Norish, O'Donoghues, Oisin Fanning, Orogen Gold, Papua Mining, Papua New Guinea, Petrel Resources, Phillip Goldstein, Rathdowney Resources, Raven Russia, Real Estate Opportunities, San Leon Energy, shorting, Strongbow Capital, TGISVP, Trinity Biotech

Continued from here:

OK, we’re in the home straight now, at least within the original valuation stage of TGISVP. Eight companies left, mostly junior resource companies, so that should be fun..! I’ve booted Real Estate Opportunities (REO:LN), as trading was suspended in January. And please, let’s not bother talking about NAMA, court cases etc… For years now, REO’s had terrible corporate governance, far too much leverage, and pretty much promised to totally fuck investors... And so it has come to pass, and shareholders don’t even have a luxury Moroccan get-away to show for it…

I’ve no desire to short shares usually – a value mindset is far too dangerous an attribute to possess if you want to play that game. But watching REO fly far too close to the sun, and not even notice its wings were melting, I just got far too itchy… I really wasn’t worried what the price was – GBP 20p, 5p, 3p…who cares when it’s going to zero anyway. Unfortunately, I couldn’t find a spread-better who would deal in it – even Worldspreads (and their zero spreads…), if I recall..!? Perhaps I didn’t ring around/push hard enough? If anybody managed to do this successfully, I’d love to hear more details?