2016 – The Great Irish Share Valuation Project (Part II)

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Circle Oil, CRH, Escher Group Holdings, First Derivatives, Galantas Gold Corp, IMC Exploration Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, iShares MSCI Ireland Capped ETF, Keywords Studios, TGISVP, The Great Irish Share Valuation Project, Total Produce, Tullow Oil

Continued from here:

Company:   First Derivatives   (FDP:LN)

Last TGISVP Post:   Here

Market Cap:   GBP 494 Million

Price:   GBP 2,038p

My last write-up was bang in the middle of a sickening price reversal. While FDP got nearly sliced in half at the time, my price target’s been massively adrift ever since. Clearly, I was wrong to speculate FDP’s consulting business* might eventually grind to a halt – as banks continue to retrench, we’re actually seeing an increasing reliance on IT outsourcing, while reduced head-count & market evolution demanded ever greater technology capacity & automation. [*Let’s not forget consulting (64% of revenue) remains FDP’s primary business, and its margins are far less scale-able than software]. And revenue’s continued to forge ahead, at an average 28% pa in the last three years, assisted by FDP’s serial acquisition strategy (three new acquisitions & a consolidation of Kx Systems in the last 18 months, or so). Earnings growth trailed though, as FDP essentially bought revenue/technology (rather than profits…with new Big Data & IoT opportunities also being touted) & the share count’s been diluted almost 25% in the last couple of years. [Even on a revenue basis, those acquisitions look damn expensive – averaging over 7 times sales, vs. a 4.2 P/S multiple for FDP]. But FY-2016 was clearly a real gang-busters year, boasting 41% revenue & 33% EPS growth.

However, we’re still seeing a huge disconnect between EBITDA & operating free cash flow margins (Op FCF: Operating cash flow, less net PPE/intangible expenditure). But presuming software is the ultimate driver of the business, EBITDA will become increasingly relevant: A decent compromise for now is to use an adjusted margin, averaging the latest 19.9% EBITDA margin & Op FCF margin of 7.2% (noting a prior year margin of just 2.6%) – a 13.6% adjusted margin deserves a 1.33 Price/Sales ratio. And noting FDP’s financial strength (with net debt of just £15 million), we can adjust for (surplus) cash & also add a debt adjustment. [Based on this adjusted margin, I calculate another £23 million in debt (at an assumed 5% rate, for acquisitions etc.) would still limit finance expense to 15% of adjusted margin – as usual, let’s apply a 50% haircut, just to be conservative]. Of course, we also need to value FDP as a growth stock: While earnings growth has accelerated to 33%, we should still recognise the huge/ongoing disconnect vs. cash flow (& reported earnings, which are now about 40% lower than adjusted diluted earnings) – limiting ourselves to a 20.0 Price/Earnings ratio, based on adjusted diluted EPS, seems only prudent (or maybe even generous):

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

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Allied Irish Banks, Clontarf Energy, Fastnet Oil & Gas, ICON, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Kerry Group, portfolio performance, Providence Resources, Ryanair Holdings, TGISVP, The Great Irish Share Valuation Project, Total Produce

Continued from here:

Company:   Kerry Group

Prior Post(s):   2012 & 2013

Ticker:   KYG:ID

Price:   EUR 51.60

So, here I am again – eyeballing Kerry’s valuation, and searching for supporting evidence in its accounts. But it’s nowhere to be found… Now I think about it, maybe all the big Irish food/agri companies will end up looking wildly over-valued to my jaundiced eye? This investor homage perplexes me – surely someone recalls how little respect these companies commanded in the past?! Well, perhaps they were different beasts then – but I don’t believe they’ve (fully) delivered on what they promised, when they embarked on this multi-year process of portfolio rationalization & re-configuration. And I certainly don’t believe they’ve grown into their current valuations either.

Then again, maybe I shouldn’t look a gift horse in the mouth! Now Donegal Investment Group (DCP:ID) has ditched its dairy business, and is looking to shed non-core assets & move up the value chain, surely it’s on the verge of a similar multiple? Hmmm, so what’s a 20 P/E worth to DCP?! 🙂

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?

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.

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

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First Derivatives, Fyffes, Irish Continental Group, Irish shares, Irish value investing, Ormonde Mining, Petroneft Resources, Rathdowney Resources, TGISVP, The Great Irish Share Valuation Project, Total Produce

Continued from here. Why don’t we just jump into the next (er, smaller!) batch of TGISVP stocks:

Company:   Ormonde Mining

Prior Post:   Here

Ticker:   ORM:LN

Price:   GBP 7.25p

ORM message boarders really took exception to my comments last year – clearly, they’re nuttier than the average Snickers bar… For God’s sake, I posted a marginally bullish valuation! Suggesting dilution might prove an issue seems to have caused most offence & was emphatically rejected. Er, what about the two subsequent placings in 2012 (one arrived a mere 5 weeks after my post)?! Muppet magic… Jesus, they probably won’t even like this year’s valuation!

Irish Shares 2012 – The Good & The Bad

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Aer Lingus, FBD Holdings, Greencore, Irish shares, Petrel Resources, Petroneft Resources, Providence Resources, TGISVP, The Great Irish Share Valuation Project, Total Produce, US Oil & Gas, Worldspreads

I’m just finalizing my review of The Great Irish Share Valuation Project (TGISVP) for 2012. My end-Q3 review is here & here for reference (and this post’s relevant also – it may even offer some interesting commentary on general stock selection & valuation). In this post I’ll cover last year’s winners & losers.

NB: FY 2012 performance is TGISVP specific, i.e. it’s only measured from the specific date I set a target price for each stock in Q1 2012. [Apologies if you’d prefer actual FY 2012 stock performances – but I’m sure there would be a high degree of overlap, anyway]. There’s no M&A to highlight for Q4 – the only items of note are i) United Drug (UDG:LN) abandoned its Irish listing in favour of London, and ii) Elan (ELN:US) spun out its drug-discovery unit, Prothena Corp (PRTA:US) – but the impact for shareholders was minimal.

Here’s the 2012 Top 10 Winners:

Heading Into 2013…

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Alternative Asset Opportunities, Argo Group, Asta Funding, Avangardco, correlation, EIIB, FBD Holdings, Fortress Investment Group, JPMorgan Russian Securities, KWG Kommunale Wohnen, Livermore Investments, Margin of Safety, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, shareholder activism, Sirius Real Estate, Total Produce, Trinity Biotech, Universe Group, Vietnam Opportunity Fund

There was a gratifyingly large surge of page views yesterday checking in on my 2012 Portfolio Performance! I’m suitably humbled by the attention – gulp, makes me wonder what challenges 2013 will throw up?! Hopefully the blog’s sparked a few decent ideas & stock picks for you in the last year or so, and you’re pleased with the progress of your own portfolio in 2012. It’s certainly been rewarding for me – most obviously in terms of improving my investment focus & analysis, but also in terms of the constant stream of questions, challenges, feedback, gossip, ideas, etc. from blog readers.

As a result, I now feel somewhat honour-bound to cough up some kind of 2013 Portfolio. I should immediately flag that some of you may find this a bit of a cop-out… 😦 But, in my defence, let me say:

– The start of a new year really means little to me, I don’t suddenly discover I have whole new batches of stocks to buy & sell!

– I rarely write about stocks I don’t own. This is pretty deliberate – my intention was never to simply fill up blank space with an idea each day/each week. I think people can really only judge your level of analysis & conviction against whether you actually own a stock – and, of course, by how much stock you own!

– I also don’t write about stocks I track, or discard, very much. First, mostly because they’re far too numerous! Second, I’m not sure I’d always manage a proper (in-depth) write-up about such stock(s). And third, I’ve sometimes tracked stocks every single day for literally years on end before buying – how often do you want to hear about them?!

TGISVP – Hot? Not?!

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Alpha Portfolio, Barron's, Beta Portfolio, binary outcomes, Fastnet Oil & Gas, FBD Holdings, garbage stocks, intrinsic value, junior resource stocks, Leverage, Margin of Safety, Petroneft Resources, portfolio allocation, portfolio performance, risk management, Smart Alpha Portfolio, Smart Beta Portfolio, stock screener, TGISVP, Total Produce, Trinity Biotech, US Oil & Gas, value investing

In my last post, I was delighted to see the TGISVP Alpha & Beta Portfolios continue to expand their level of out-performance vs. their ISEQ benchmark. Particularly pleasing was the sight of my favourite, the Smart Alpha portfolio, far outpacing the others with a 21.1% YTD absolute return. But we’re still only 9 months into the experiment, so clearly we need a far longer horizon to confirm if this performance edge is sustainable.

It also makes me wonder if there’s a lesson to be learned here..? No, not whether value investing out-performs in the long run – I’m fully convinced of that already! [And if you’re not, please please read some of the numerous papers published on the topic]. But whether a mechanical approach is perhaps better?

Ha! No, I’m certainly not planning on becoming a stock screening convert..! But I wonder: Even if you’re a v competent & disciplined value analyst, even if you’ve conquered much of the fear & greed involved in investing, perhaps that demon mind still trips you up at that v last hurdle, or two..? When you’ve a nice stack of portfolio candidates lined up, why do you then take a shine to some & not to others? Why does one special stock really get your heart racing, far out of proportion to its obvious prospects? Why do you end up triple invested in one stock vs. another, when they both lined up pretty much even-stevens in terms of risk/reward?

Hitting The Century (V – Ireland)

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% of world GDP, Andrew Langford, COR, default, Emerald Isle, Europe, European sovereign debt crisis, Event Driven, Fairfax, FBD Holdings, Greece, home bias investing, Ireland, Irish value investing, ISEQ, Prem Watsa, Price/Book, Return on Equity, taxes, Thatcher, Total Produce, Trinity Biotech, UK, Wilbur Ross

Continued from here. OK, let’s take a look at my next investment allocation:

Ireland (16%):   So much for all my rabbiting on about home-bias, what a terrible job I’ve done here..! Ireland accounts for a whopping great 0.3% of world GDP, and yet I’ve got 16% of my portfolio invested in the Emerald Isle (yes, please visit, all tourist revenues gladly accepted)!? OK, so, in my defence:

i) C’mon, everybody’s doing it! I’m confident 16% is far lower than the average Irish investor (and US investors are just as bad – how many realize US GDP is now just 22% of world GDP?).

ii) As Philip O’Sullivan (taking off the green jersey?!) reminded me, these stock picks are not that Irish anyway! Total Produce (TOT:ID/LN) is essentially pan-European, Trinity Biotech (TRIB:US) operates primarily in the US (& Europe) – I guess FBD Holdings (FBD:ID, FBH:LN) is my only true Irish exposure!

TGISVP – What’s Interesting, What’s Not..?

Tags

Bank of Ireland, bubbles, dividend yield, DYOR, intrinsic value, ISEQ, natural resource stocks, Ovoca Gold, Permanent TSB, Petroneft Resources, Ponzi, portfolio allocation, portfolio performance, Prime Active Capital, REIT/MLP sector, stock screener, TGISVP, Total Produce

In my last post, I was pleased to see TGISVP continue to deliver significant out-performance vs. the ISEQ benchmark. Early days yet: This could be blind luck, but hopefully it’s derived from a robust analytical process that clearly identifies over/under-valued shares. Which naturally demands a bit of a refresh…

I haven’t actually felt compelled to perform any Irish share revaluations since my TGISVP X post, even for stocks I hold. Personally, I’m pleased with this – I’m v comfortable with my Irish holdings, I believe my valuations are robust, and there’s been no unexpected news-flow. In light of my current Irish portfolio allocation (16%), and actual stocks I hold, I’d be reluctant to add another Irish share. This doesn’t mean forgetting the rest, of course! It does mean I can just watch out for interesting price drops, rather than agonize over constantly refreshing valuations.