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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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.

My Dirty Little Dividend Secret…

Tags

Alternative Asset Opportunities, Anton Bilton, commercial property, credit risk, distressed investing, Event Driven, fixed income, high dividend yield, income/dividend bubble, Leverage, Net LTV, priority claims, QE, Raven Mount, Raven Russia, RUSP, Russia, Tetragon Financial Group

I’ve made no secret of my disdain for dividends, or that category of dividend/income investors who seem to be just plain mental..! Especially the US variety of the breed, it must be said. 😉 I was even moved to write a dividend series: ‘Chasing Some Dividend Tail..?’, Parts I, II & III. I recall some of you enjoying it – and believe me, it was just as much fun writing it! But as with all moral arbiters, there eventually comes a mea culpa – ‘I have sinned, oh Lord…but I was seduced in a moment of weakness!’ And here’s mine, replete with tears:

Oh Lord, I couldn’t resist – I fell for a stock flaunting a (near) 13% dividend…the damn hussy!

Let me introduce you to:   Raven Russia Limited (RUSP:LN)

Note I don’t mean their ordinary shares (RUS:LN) – I invested in their preference shares (RUSP:LN). I bought them in late 2009, so my purpose here isn’t to produce a new write-up – but rather to offer what might hopefully be a useful primer for analyzing & buying similar instruments. [Well, at some point – in the current climate, good credit opportunities are becoming increasingly rare. But see this Tetragon Financial (TFG:NA) write-up – though TFG sports a v different level of risk]. Of course, that’s really only useful if I can reproduce my original analysis & perspective – with the help of the financials & my notes from that period, I think I can do just that (hopefully eliminating the benefit of hindsight as much as possible).

2012 – Aaah, How Was It For You..?

Tags

alternative assets, Argentina, Argo Group, Avangardco, Baker's Dozen, diversification, dividend yield, EIIB, frontier markets, hedge funds, home bias investing, Irish shares, JPMorgan Russian Securities, NAV discount, Petroneft Resources, portfolio allocation, portfolio performance, Renaissance Russia Infrastructure Equities, Richland Resources, Russia, Sirius Real Estate

[Here’s my last performance report, for reference].

OK, just in time, my performance analysis got a bit more sophisticated. It now includes dividends, and is calculated on a weighted average gain basis, so now the impact of larger & smaller portfolio stakes is recognized. I think I’ve tracked any increase/decrease in portfolio holdings pretty well during the year, via Twitter (so plse sign up as a follower!) & blog comments. [No point in having interested readers if I don’t post such relevant info on a timely basis]. This allowed me to calculate an average portfolio stake for each holding, which I think is the best metric to use.

I did, however, stick with my original yr-end 2011 or 2012 write-up prices as a cost base – I didn’t want to drive myself crazy calculating average net purchase prices! However, I know I’ve subsequently added to portfolio holdings at higher & lower prices, so I think that pretty much cancels itself out. It also means I’ve omitted partial profits harvested on certain holdings, so my total return may be marginally understated.

Overall, eyeballing my respective analyses, dividends & portfolio weightings have in total (on a pretty even split) added about 2-3% to my annual return. The pretty low contribution from dividends may surprise you, but don’t forget I’m none too enamoured with them… See here, here & here. As far as I’m concerned, if you’re impressed enough with a stock’s valuation & prospects to actually buy it, surely you’d prefer to see it compound its earnings?! Only a third of my holdings pay a dividend.

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:

Hitting The Century (VIII – Agriculture)

Tags

agri-business, agriculture, Aqua Bounty Technologies, aquaculture, Asian Citrus Holdings, Avangardco, Black Earth Farming, Cal-Maine Foods, Canada, chickens, Cresud, eggs, ETFs, farmland, fish, forestry, free cash flow, inflation, livestock, plantations, portfolio allocation, real assets, Russia, timber, Ukraine

Continued from here. This series fell by the wayside since September, as I focused on a flurry of posts covering performance, a little shareholder activism, and some pretty exciting new stock buys/write-ups. Oh, and some bubble bursting..! 😉 As a reminder: i) Asset allocation plays a far greater role in returns than perhaps we like to think – in this series I thought I’d try illuminate some of the logic behind my own portfolio allocation & stock selection, rather than individual stock picks, and ii) this portfolio allocation pie-chart might prove handy:

The prior Century post & Inflation post are v relevant too: They highlight why I believe inflation won’t prove an issue in the near/medium term, and how to prioritize the choice of real assets (property, natural resources, agri) as inflation pure plays. My expectation of delayed inflation, despite QE Infinity, has choked back my real asset allocation. Also, I consider many of my real asset holdings more special situations, than inflation plays.

H1 2012 Performance!

Tags

Argo Group, Avangardco, Baker's Dozen, Irish Stock Exchange, Irish value investing, natural resource stocks, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, Russia, The Office

OK, it’s performance time. For reference, here’s a link back to my Q1 2012 review.

If I told you European markets were actually positive in the first half of 2012, would you believe me?! Actually, it’s true. Wow, doesn’t feel like it, eh..? Hmm, I think we all know that’s just the tip of the iceberg in terms of the tricks the media & your own mind/emotions play on you. Say what you like about Microsoft & Excel, spreadsheets are your only hope of separating fact from fiction, and analysis from emotion (as for Powerpoint, sigh…).

Some notes first: For simplicity, an equal weighting is assumed for all stocks. No attempt’s made to calculate any FX gains/losses either – which would depend on your base currency anyway. If a stock wasn’t held/written-up as of year-end 2011, the price noted at the time of my investment writeup is used instead. Similarly, if a stock was sold (marked**) before end-June, the price noted when I reported the sale (via blog post, comment and/or tweet) is used. Right, so how did we do in H1 2012?

From Russia With Love (Part II)

Tags

Aurora Russia, Baring Emerging Europe, closed-end funds, emerging markets, frontier markets, infrastructure, JPMorgan Russian Securities, Mongolia, Origo Partners, Prosperity Voskhod Fund, QE, Renaissance Russia Infrastructure Equities, Russia, Templeton Russia & East European Fund, Vietnam Infrastructure, Vietnam Opportunity Fund

Continued from here:     So why the interest in Russia? Well, for me, pretty much any emerging/frontier market’s preferable to those in the developed world these days! Everywhere I look, I see better growth, better demographics, better government finances, lower debt and no currency debasement… And all this for stock market valuations that are similar to/cheaper than Western markets. There are a number of markets I feel are particularly attractive – for example, I’ve highlighted Vinacapital Vietnam Opportunity Fund (VOF:LN) before as a good stock pick for exposure to Vietnam. With my continuing bullish view on oil and other commodities (and the inflation risks posed by global QE), Russia presents a compelling market opportunity.

So how does Russia actually stack up these days? Well, first one needs to realize how far it’s come. In the past 10 years GDP has more than quintupled, Russia’s now a Top 10 global economy, and average GDP per capita (in nominal terms) is around $16,700. This last stat’s v interesting – $17 K goes pretty far in what’s still an emerging market, and it explains the booming Russian middle class, something many investors have under-estimated.

TGISVP VIII – ISEQ Recap

Tags

Allied Irish Banks, FBD Holdings, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Petroneft Resources, Prime Active Capital, Russia, TGISVP, Total Produce, Tullow Oil, Zamano

Continued from here. I highlighted we’ve another 20 or so stock valuations to work through, but we’re now finished with all the ISEQ-listed Irish stocks. Whenever you consider Irish stock performance or are investing in some type of Ireland focused fund/product, it’s only these ISEQ stocks that will (likely) be relevant. We’re therefore at a good point to pause and provide some interesting stats & comments. I’ll use the TGISVP V Excel file from this post, but I’ve updated it here with current market prices as of March 7th (and included my TOT & FBD valuation updates):

TGISVP V (Mkt Prices Updated Mar 7th)     (xlsx file)

TGISVP V (Mkt Prices Updated Mar 7th)     (xls file)