What was I writing about in October?
It’s nice to see that I mostly called things right, with my favoured ideas doing better than the market average, and my unfavoured ideas doing poorly. I do have the benefit of a bull market.
ASX is +11.3% over 6 months, and I am switching from publicly disclosing my reviews, were it not for the fact that I said that RGS (Regenersis) was my “favourite stock”. This is, of course, a recipe that invites ridicule. Fortunately, the market has decided not to serve me a braggard-size portion of humble pie, as the stock is up 90% over 6 months. Not bad! If only I could turn these stocks up all the time. I favoured it due to its “cheap valuation” and “well-articulated growth story”. A sensible man would now quit with his predictions whilst he is ahead – but I’ll roll the dice again and give what I think is an attractive opportunity near the end of the post.
But before that, let’s go through a post-mortem about what I was saying in October.
CPP – to say this is a trouble-strewn company is putting it mildly. I noted a preliminary approach by Affinion Group. It looks as though they got cold feet. Anecdotally, it seems that the majority of takeover approaches don’t happen, and usually end up being good selling opportunities. Things are getting interesting for CPP. On 27-Mar-2013 it announced that the majority shareholder, Hamish Ogston, made a preliminary approach at 1p. On 28-Mar, CPP reported that it was in “constructive discussion” with existing lenders to finding “a solution to the Group’s financial position”. The credit facility has been extended from 31 Mar to 12 Apr. Simon Cawkwell has said “the company is effectively bust” and “the shares are worthless”. I wouldn’t want to disagree with someone who is undoubtedly a better investor than me. However, I do note that Ogston, a director of the company, thinks the shares are worth at least 1p, and talk of “constructive discussions” with the banks seem to indicate that the situation might be salvageable. I’ll put that in my “too difficult” pile. Note that shares are at 3.92p – way above the approach price of 1p. The shares are down 48% over 6 months. Yikes.
HIBU – I didn’t like it 6 months ago. Shares are down 23% over 6 months. That’s not quite the slam-dunk “I was right” I was hoping for,though, as you could have bought the shares at the end of November for around 0.27p, and made a tidy profit from where they stand today at 0.383p. So far, this company refuses to die – and I have been proven wrong when I said that I expected HMV to be dead before HIBU. Revenues for HIBU have declined, the debtors have waived covenants for the time being, and “a number of capital structure options are being considered … likely to result in little or no value being attributed to the Group’s ordinary shares”. It seems that there is still no investment case for buying the company shares, but it remains to be seen if this zombie receives a headshot within 6 months, or will still be shambling around looking for brains to feed upon. Stay tuned for the news.
SRT – “looks like a buy to me” – oops, shares are down 24% over that period. SRT must, I’m sure, have proven a great disappointment to its investors, as it has delivered far short of expectations. A quick scan of the RNSs suggests that SRT has had more than its fair share of equity issues, although it now seems to be reporting some actual orders. I imagine the credilibilty of management has taken a pounding, though. Forward PE looks to be about 10 – which is higher than the forward PE I noted 6 months ago, despite the fall in share price. This is quite a tricksy company, and despite the fact that shareholders may do well out of, I for one am not tempted to buy any shares. Another one for the “too difficult” pile – at least for me.
TNI – up 75% over 6 months, with plenty of thrills and spills along the way. Paul Scott and others have written far more insightfully about TNI than I ever could (sometimes at odds with each other as to whether TNI represents an attractive opportunity) – so I’ll say no more.
SHG – Shanta Gold – is a gold miner – down 23% over 6 months. So far it’s lived up to Mark Twain’s adage that a “mine is a hole in the ground with a liar at the top”. I was once bullish on this company, but no more. Another coin-flip stock.
LAM – up 17% over 6 month – which is “usefully” ahead of the ASX, although the share price seems to be heading down the hill again. It may need some positive news to inject some life into the share price.
LSE – London Stock Exchange – I noted that there was fear in the stock over collateral requirements, but countered that with “how much cheaper do you want it?”. The share price is up 40% over 6 months. This is an example of a company that clearly has a lot of quality to it being beaten down heavily on negative sentiment, and how it often pays to buy some shares based on this.
Any general lessons here? Well, RGS was cheap and had good prospects – so investing in that paid off handsomely. Sometimes a share can be so cheap as to be a bargain even if it is in a declining market (TNI) – provided the value case is largely unambiguous. Good quality companies at decade-low valuations also works: witness LSE above – although for shares like TSCO and ABM the result has been somewhat mixed. LAM – a company in the doghouse but which “should” be OK has produced an above-average result – but not eye-poppingly so. Also, companies which are more ambiguous in their prospects tend to have divergent results.
I thought I’d give a little mention to PRZ (Prezzo) – the share I entered for the Nicky Fraser Share Competition. It’s currently up 25% for YTD – and I’m well happy with that! As I have said before: if only I could get them right like that all the time. My pick is only in the second quartile, although is ahead of the ASX by about 15% – and it would seem churlish to complain about that.
Coming soon is a post on “what I learnt” … I’ll keep it short … presumably because I haven’t learnt much.
OK … but back to my earlier promise … my most “favoured share” that I want to highlight is GAH (Gable Holdings), which I wrote about 2 weeks ago, so I wont repeat myself here. The share price has been drifting for the past several weeks – but I wouldn’t let that put you off. It’s one of those shares that doesn’t get talked about much, is small cap and rather illiquid, so it tends to see extended periods of inaction. I still see RGS as a solid pick, along with PRZ and SGP. SGP (Supergroup) is currently bouncing along a support line of around 600p, trades on a forward PE of 10, with expected double-digit revenue growth. My view is therefore that it is consolidating in preparation for a move up. Patience may be required, though, as it currently not an “action” stock. That’s just my opinion of course. Any individual choice could turn out to be a mistake, so diversification is necessary.
Happy investing all … and let’s see if my choice of GAH holds any water at all in 6 months time.