After some soul-searching, I’ve cashed out on my resources, and online gaming company SBT (SportingBet).
SBT has "all the usual" problems associated with online gaming – problems with taxes and legality, and shareholder dilution. SBT’s revenues have declined from £2b in 2006 to £206m in 2011. Shares in issue risen from 394m in 2006/12 to 667m currently. There’s plenty of dough to be made in online gaming, for sure, and some companies like PTEC (Playtech) have sticky services. I’m still out.
I also got rid of my resources: miners and oilies. I saw a great video on Youtube on "The 18 Stages Of Mining Ruin", which basically showed how a junior goldie could go from a PE of 1 (where it is of course cheap) to 100 (which is obviously expensive), shafting investors. The short version is that dilution, ratchetting expenses, and governments are what cause the problems. I also realised that AFF was a flying punt, too. I wasn’t happy about ENQ (Enquest), which has strong cashflow, but high depletion charges. And no outside major shareholders. Last up is BLT, which is at least a good company. Sanjeev Shah has expressed his dislike of miners, saying that they are earning historically high earnings. He’s not wrong, either. Looking at BLT’s accounts for 2011, I see it has operating margins of 44%. RIO has 38%. Those are high margins, and them some. Those margins are higher than for pharma companies. Can’t help thinking there’s going to be some mean reversion waiting to happen.
I’m not saying my decision is right, of course. Some of them may turn out to be outstanding bargains.
Other bearish indicators: I totted up the market caps of the Footsie. Mining accounts for 14.7%. If I include oilies, that figure goes up to 28.9%. Imagine that, over a quarter of the market value of the Footsie is in resources – a suspiciously high figure considering that it is a cyclical sector. Also, a lot of resource companies have floated in the last year or two, a further bearish indicator. You never know, of course – there could be more quantitative easing, sending the price of commodities ever-higher.
I have much to learn.
AFF 70p, BLT 1869p, ENQ 125p, SBT 35.5p, SHG 20.75p. ASX (all-share) 2945.
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