FY-2018: What The Market Gods Giveth, They Also Taketh Away…

Tags

absolute return, annual review, Applegreen, benchmarking, blockchain, bubbles, cryptocurrencies, Donegal Investment Group, KR1 plc, portfolio performance, Rasmala, relative return, shareholder activism, Trump, Zamano

Back in much happier days (last July!), faced with indices that were (on average) broadly flat, I sagely accepted that:

‘Looking back, the first half this year seems kind of inevitable now…’

Of course, this now haunts me as absurd understatement. And an unfortunate reminder the hardest time to sell is…inevitably, when you should sell! But after a crackerjack 2017, I did see 2018 as more of a market time-out, than anything else – as reflected here, consciously or not, in the lack of blog posts & commentary. My bad…but sometimes it’s better to take stock & just enjoy how wonderful real life can be!

The same is true of my disclosed portfolio – my only reported activity was to: i) top up my Record (REC:LN) holding (which I still prefer to call bad timing, vs. an actual bad decision), and ii) re-establish my Donegal Investment Group (DQ7A:ID) portfolio allocation, after management redeemed over 50% of its outstanding shares. Elsewhere, after enjoying rapid/substantial price run-ups on certain undisclosed holdings (the main reason they never quite made it onto the blog), I focused on positioning myself for a rough October. Pals will back me up on that…but obviously it wasn’t visible here, it’s never enough when you’re right (cheap buys won’t offset damage in the rest of your portfolio), the market proved far worse than I expected, and only fools believe in all or nothing market timing anyway.

[Forget the guy who pissed you off the other day – you know the one, that dude boasting only an idiot wasn’t all in cash & set for the crash – because he’s also the guy forgets how many other times he (wrongly) went to cash, plus all the gains he’s missed out on over the years].

So let’s just go ahead & survey the actual market carnage – here’s my FY-2018 Benchmark Return – as usual, it’s a simple average of the four main indices covering most of my portfolio (& my readers’ too, I expect):

Advertisement

Zamano – Time For A Dividend & Your Support…

Tags

dividend coverage, dividend payout ratio, dividend yield, Irish value investing, John Rockett, Pageant Holdings, Ross Conlon, shareholder activism, shareholder value, Zamano, ZMNO

Here’s a recent letter I sent the board of Zamano plc (ZMNO:ID, ZMNO:LN) – it proposes the company now commence paying an annual dividend. I’m also now actively seeking the support of my fellow shareholders:

‘27-Feb-2016

FAO:   John Rockett, Chairman
            Ross Conlon, CEO

Cc:      Pat Landy, NED
____- Colin Tucker, NED
______Fergal Scully, NED

zamano plc
3rd Floor
Hospitality House
16-20 South Cumberland St
Dublin 2

Gentlemen,

Pursuant to my last Zamano post, I want to thank Ross for responding to the shareholders who contacted the company regarding my annual dividend proposal. A number of shareholders have also contacted me directly to confirm their support – I now speak for 13.1% of Zamano’s outstanding shares. Noting this support & the upcoming Mar-10th release of Zamano’s final results, this is a good opportunity to write to you more formally & reiterate my dividend proposal:

– Zamano’s been profitable for the past four years now. Since 2011, the company’s revenue has increased by 55% to a €23.3 million annual run-rate, annual EBITDA has averaged €2.6 million, while annual free cash flow has averaged €2.5 million (for FYs 2012-14). This has now resulted in net cash of €5.4 million on the balance sheet, versus €4.4 million of net debt in 2011, a near-€10 million swing in the company’s financial position.

Recommendation: Vote AGAINST the Argo Group Share Buyback Proposal

Tags

Andreas Rialas, ARGO, Argo Group, Kyriakos Rialas, Michael Kloter, Rule 9 Waiver, share buyback, shareholder activism, shareholder value, The Argo Fund

Here’s the recent RNS from Argo Group (ARGO:LN), notifying shareholders of a March-3rd EGM seeking authorisation for a £2 Million Share Buyback & Rule 9 Waiver. [Here’s the actual EGM Circular]:

– Argo Group’s AUM has now declined by a cumulative 85% (to $166 million), the $3.5 million Argo Local Markets Fund remains its only new fund-raising (since the credit crisis), it continues to write-off virtually all the management fees accrued & owed (now totaling $6.2 million) by the Argo Real Estate Opportunities Fund, and it’s also tied up a majority of shareholder funds in illiquid loan & fund investments. Management’s obvious inability to stabilise & increase AUM, plus its wilful neglect of shareholder value, are clearly to blame here for the 50% collapse in Argo’s share price just in the last 3 years.

– Judging by local press reports (for example, here & here), Andreas Rialas originally received a substantially higher offer for Argo’s Indonesian refinery investment (TPPI), but ended up spending another couple of years negotiating (or refusing to negotiate) with Pertamina…to ultimately realise a far lower exit price for fund/shareholders. [Which is consistent with a near-25% write-down (in the last interims) of Argo’s stake in The Argo Fund].

– Pursuant to this letter, in 2014/2015 I introduced and/or referred to Andreas Rialas a number of trade & financial buyers who were interested in potentially acquiring Argo Group, its asset management business, or its fund investments. Since then, I’ve had no meaningful feedback or reason to believe he/Argo have seriously engaged with any of these potential buyers.

– The EGM Notice process was both unprofessional & inappropriate: While most investors learned of the Share Buyback from Argo’s RNS (released after close-of-business on Mon, Feb-8th), the Notice was actually posted the prior week & received by some shareholders on Sat, Feb-6th.

– The Indonesian sale & proposed return of capital is Argo’s first major value-creation event in a number of years. Some level of (prior) consultation with a representative group of external shareholders, plus some additional time to adequately consider & discuss the proposal, would have been appropriate.

– Kenneth Watterson is a director since Argo’s original 2008 Admission. As is David Fisher, who’s also been an AREOF director since 2010. While Michael Kloter has a much longer history with Andreas & Kyriakos Rialas, Absolute Capital Management (which acquired Argo back in early 2007), not to mention Florian Homm (also, see here & here)…and received a post-Admission bonus, while billing Argo for legal services over the years. In aggregate, these directors have earned an estimated $1.4 million in total remuneration from Argo. I must say, I struggle to understand how they still qualify as Independent Directors..?!

Zamano…So, What Now?!

Tags

Irish shares, Irish value investing, mobile content, mobile payment, Pageant Holdings, Ross Conlon, shareholder activism, takeover offer, Zamano, ZMNO

It’s 18 months since my original Zamano (ZMNO:ID, or ZMNO:LN) write-up:

‘Zoom, Zoom…Zamano!’

Maybe I should kick off with an update…but if you’re a current (or potential) shareholder, how can we avoid the elephant in the room? Yeah, I’m talking about the early-Aug announcement of a possible EUR 0.20 per share offer for Zamano. The one where investors were subsequently left in the dark for nearly three months, only to learn in late-Oct bid discussions had actually been terminated (no further details were provided). I’m sure plenty of shareholders have been experiencing the five stages of grief since, and who can blame ’em really…it must feel a lot like getting jilted at the altar!

So, What Now..?!

Well, less than a fortnight later, the company released news of the Chairman’s upcoming resignation, plus a 9 month trading update which (while excellent) consisted of a single sentence… This appears to draw a line under the failed bid, and signals it’s business as usual, which I really don’t find acceptable. Shareholders deserve better. Whatever the merits/likelihood of the bid, it’s a frustrating reminder of the obvious value gap between ZMNO’s share price & its intrinsic value. I’m quite sure a majority of the company’s shareholders (i.e. its bloody owners!) now feel like they’re owed at least a strategic review, laying out in detail how the board intends to close the current value gap & grow shareholder value. Let’s map out the available strategies (and forgive a more jaundiced view):

Organic Growth

My last post relied on FY-2013 figures – since then, the company’s enjoyed consistent revenue momentum of +24% in FY-2014, +19% yoy in H1-2015 & an accelerated +37% yoy in Q3-2015, while net cash increased over 150% to €5.4 million. The recent trading update now pegs the revenue run-rate at €23.3 million, a 45% increase in less than two years! Maybe ZMNO finally deserves a growth stock re-rating?! Let’s hope so… Here’s updated financials to end-June 2015, focusing (again) on cash flow:

It’s encouraging to note recent (& historical) growth clearly doesn’t require increased cash investment. But let’s not fool ourselves, management’s enjoyed some attractive tail winds here. With 80% of the business now coming from the UK, sterling strength is a significant top-line contributor. The EUR/GBP rate averaged 0.8491 in 2013, and now it’s 0.7046 – that probably accounts for 25-30% of the post FY-2013 revenue increase. And with the UK & Ireland being two of the best economies in Europe (in terms of GDP growth/recovery & declining unemployment), increased consumer spending is another substantial tailwind. Plus, there’s a renewed emphasis on B2B – and while that delivers a more stable/durable revenue stream, it also means lower margins & a lagging EBITDA (which increased 19%, to €3.1 million) over the same period.

Argo Group…Time for a Sale and/or a Wind-Down?

Tags

Andreas Rialas, ARGO, Argo Group, Church House Investment Management, David Fisher, Guy Thomas, Jeroen Bos, Kenneth Watterson, Kyriakos Rialas, Michael Kloter, shareholder activism, shareholder value, tender offer

Here’s a copy of a recent letter to Andreas Rialas of Argo Group (ARGO:LN) – the letter speaks for itself…

‘August 29, 2014

FAO: Andreas Rialas, CIO

Cc: Michael Kloter, Chairman
      Kyriakos Rialas, CEO
      David Fisher, Director
      Kenneth Watterson, Director

Argo Group Limited
33-37 Athol Street
Douglas
Isle of Man
IM1 1LB

Dear Andreas,

Further to our prior conversations, I would like to confirm I now speak for 15.6% (in aggregate) of Argo Group’s outstanding shares. Excluding insiders, this represents 25.0% of Argo’s external shareholder base. Supporters now include well-respected funds and investors such as Church House Investment Management, XXX Capital Management, Guy Thomas, and over two dozen other Argo shareholders.

European Islamic Investment Bank – Tender Offer/AGM Reminder

Tags

asset management, EIIB, European Islamic Investment Bank, share buy back, shareholder activism, shareholder value, tender offer, Zak Hydari

I hope readers were just as pleased (as I was) to note the recent tender offer announcement by European Islamic Investment Bank (EIIB:LN). Even if you’re not an EIIB shareholder, it’s an excellent reminder activism isn’t simply a bloodsport practiced by US hedge funds. All investors, large & small, have rights & responsibilities as the owners of the companies they invest in – and sometimes they need to insist their voice is heard by management…

I proposed such a tender offer to EIIB management in my Jan-2014 letter (with the support of Guy Thomas, Ali Al Shihabi & a number of other shareholders). Of course, this letter was a follow-up to my previous 2013 letter. Some might argue I’ve been far too sedate/polite in my activism – that’s understandable – I could definitely have taken a far more aggressive activist stance, but in this instance my approach reflected my underlying (positive) perspective on the business. As I’ve detailed before, I believe EIIB offers investors a compelling triple play on frontier markets, Islamic finance, and Middle Eastern oil wealth & resources. Unfortunately, in its previous incarnation, that potential was wasted…

However, the arrival of HBG & the appointment of Zak Hydari as CEO stabilized the business, led to the acquisition of Rasmala & re-focused operating strategy on becoming a leading GCC asset manager. Which has, to date, been a great success – not that you’d notice from the share price – Assets under Management (AUM) have doubled in just 2 years (to USD 1,176 million at year-end 2013, from USD 600 million in Jan-2012). This is clearly a high margin business, with attractive economies of scale, but that’s not yet apparent due to the restructuring of Rasmala/EIIB & the rapid expansion in AUM. Unfortunately, as things stand, it’s unlikely this operating progress/potential can deliver a decent return on equity for shareholders in the foreseeable future – because any likely return will end up swamped in a sea of equity! [EIIB currently has GBP 123 million of equity, mostly in cash & liquid securities].

A Letter to the CEO (& Board) of European Islamic Investment Bank

Tags

Ali Al Shihabi, AUM, EIIB, European Islamic Investment Bank, Guy Thomas, HBG Holdings, HBG Management Partners, Rasmala Holdings Limited, shareholder activism, tender offer, Zak Hydari, Zulfi Caar Hydari

Here’s a copy of a letter I’ve forwarded to EIIB’s CEO & board:

‘January 26, 2014

FAO:       Zulfi Caar Hydari, CEO

CC:         H.E. Abdallah Yahya Al-Mouallimi, Chairman

                 Mohammed Abdul Aziz Ibrahim Al Sarhan, Sr. Ind. Director

                 John Robertson Wright, Non-Exec. Director

                 Michael Willingham-Toxvaerd, Non-Exec. Director

                 Martin Gilbert Barrow, CBE, Non-Exec. Director

European Islamic Investment Bank plc (EIIB:LN)

Milton Gate

60 Chiswell Street

London EC1Y 4SA

United Kingdom

Dear Zak,

I’m writing this letter with the full support & active input of Guy Thomas (CIO, Hazell Carr Edwards FURB) and Ali Al Shihabi (founder & former Chairman of Rasmala Holdings Limited (‘Rasmala’)). You’ve obviously spoken & emailed with each of us, jointly or separately, on numerous occasions. We currently own an aggregate stake of between 4% and 5% in EIIB. In the last annual report, you stated ‘in 2013 we will begin to focus attention on translating our success into improved share price performance’. We’re disappointed by the subsequent lack of progress, and disturbed by a number of recent developments. To summarize:

Argo Group Interims – A Preview

Tags

% of AUM, Andreas Rialas, ARGO, Argo Group, Argo Real Estate Opportunities Fund, AUM, Cyprus bail-out, intrinsic value, Investor Relations, shareholder activism, shareholder value, The Argo Fund

I expect Argo Group (ARGO:LN) will be releasing interim results in the next week or so. I’ve no desire to be a hostage to fortune, but I think we can make some intelligent assumptions about their results – and there’s an important issue I want to highlight:

Let’s begin with Assets Under Management (AUM). First, I obviously have no idea re subscriptions/redemptions! But rightly or wrongly, my impression is that changes in Argo’s AUM have been driven primarily by performance, at least in the past couple of years. [NB: See here – at our meeting earlier this year, Andreas Rialas committed to better disclosure re changes in AUM – breaking out gross subscriptions, performance & gross redemptions is standard practice for the majority of Argo’s listed peers].

I also have no insight into the performance of the Argo Special Situations Fund (SSF) – let’s assume AUM remains unchanged. We then have the Argo Real Estate Opportunities Fund (AREO:LN) – which last reported an adjusted NAV of EUR 68.5 mio. For Argo’s other funds, I’ve come across conflicting reports of YTD returns – I prefer to be conservative, so I’m fairly confident we’ll see the following returns (as of end-June 2013), at a minimum:

The Activist Investor

Tags

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.

Argo Group – Awaiting Results

Tags

% of AUM, alternative assets, Andreas Rialas, AREO, ARGO, Argo Group, Argo Real Estate Opportunities Fund, asset managers, distressed assets, distressed investing, emerging markets, European sovereign debt crisis, Expected Value, intrinsic value, Kyriakos Rialas, Price/Cash, share buyback, shareholder activism, tender offer, The Argo Fund

Argo Group’s (ARGO:LN) Final Results should be released shortly (I’ll try confirm the exact date). In my most recent Argo posts, I published two letters I’ve sent to Kyriakos & Andreas Rialas (CEO & CIO, respectively). I encourage you to review both letters before continuing:

Here’s the first letter (from Nov-2012)

Argo’s share price rallied +6.2% in the following week.

And the second letter (from Dec-2012)

This was sent on behalf of myself, Guy Thomas & some other (smaller) shareholders, representing an aggregate 5% shareholding in Argo. The letter focused on a single specific shareholder distribution proposal. ARGO subsequently rallied +6.5% (in the following week). [In fact, the share price is now up an impressive +36% since my November letter. Despite the rally, I believe Argo remains just as compelling an investment proposition – I currently have a 5.4% portfolio stake].

My recommendations & proposal require little (further) explanation, and I expect shareholders will enthusiastically support all efforts to realize & enhance Argo’s intrinsic value. But I will revisit them in the context of an upcoming results preview – plenty of current & prospective shareholders have emailed me about Argo, so I hope you’ll find this useful. Let’s first consider Argo’s existing funds: