Well, my holding in LMI (Lonmin) has been a long, tedious drawn-out affair. I am down 17% since I last bought it in January. It is very to easy to become discouraged when the share price does not behave as you expected.
The shares are up 3.76% to 146.4p in early trading, and I am now optimistic that this share will start making progress.
* GLEN is set to make a transfer or cash payment of their hefty Lonmin stake on 9 June. I had figured that this will create a sell-off, but I have seen a suggestion that the overhang must be almost clear. Volumes of trades do not look to have been particularly high, though
* It’s a spinoff. Whilst spinoffs are of course no guarantee of making large returns, they are worth paying attention to, with a view to buying. GLEN thought that Lonmin was not a good strategic fit for the company. I think they really mean “get rid of this underperforming junk”.
* As a commentator noted recently, GLEN is disposing of its stake at what is possibly a cyclical low.
* If there’s one scenario that spells “profit”, it’s when a company dumps a big block of shares at a cyclical low
* LMI is trading on a PBV of 0.4. That’s low. It has never traded lower in the last decade.
* It has a PE of 58.3, or 38.4, depending what sources you use. That’s because profits have crashed. Buying cyclicals on high PEs is not something to be feared, necessarily. Buying cyclicals on low PEs is what leads you into danger
* The shares have crashed 91% over 5 years. Its peak adjusted EPS was 126.4p. The share price is 146p. You might be prepared to pay 4X peak earnings, tops. This is at just over 1X peak EPS. This is bullish, in fact very bullish, if your are going with a mean-reversion hypothesis * debt is low
* Kevin Murphy suggested it as an investment idea at the London Value Conference (http://is.gd/XNZrxN)
* Bloomberg notes: “The world’s third-largest platinum producer has gotten so cheap, a buyer could acquire the whole company for about as much as it takes to build a single mine shaft.” (http://is.gd/YpfXje)