Austock portfolio versus my model portfolio update (as at 28 Oct 2011)

Austock portfolio versus model 28 Oct 2011The Stock market volatility continues and the performance of both my model portfolio and the Austock portfolio also continue to lag behind the ASX 200 Accumulation index. As I’ve mentioned before, this is not a sprint, but a marathon, so performance over twelve months counts. Performance over four months means we are only a third of the way through our journey. Read more of this post

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Austock portfolio versus my model portfolio update 13 Oct 2011

Austock portfolio versus model portfolioIts been almost four weeks since  I last updated the performance of the two portfolios. There have been a couple of changes to stocks that are in the Austock portfolio since that time. ConnectEast Group (ASX: CEU) has been taken over and suspended from trading and WPG Resources (ASX: WPG), sold its iron ore assets to OneSteel Limited (ASX: OST), and returned capital of 42 cents and paid a special dividend of 63 cents to shareholders. As a consequence, its share price has fallen from around 80-90 cents to 10.5 cents. I’ve included both the capital return and special dividend as dividends for the Austock portfolio.

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Washington H Soul Pattinson (ASX:SOL) – overlooked?

You may or may not have heard about Australia’s second oldest listed company, Washington H. Soul Pattinson (ASX:SOL). The company has been listed on the Australian Stock Exchange for more than 107 years. The company has a current market cap of over $2.9Bn, putting it into the Top 50 companies in Australia by market cap. Would you believe its not in any of the standard ASX indices? Not even the ASX300. The reason is that the company has a cross holding agreement with Brickworks (ASX:BKW), where Soul Pattinson owns 44% of Brickworks shares and Brickworks owns 43% of Soul Pattinson shares. This was setup to protect both companies from being individually acquired.

The company has returned 17.5% per annum to shareholders over the last 15 years, and at the current price of $12.18, looks to be trading at a discount to intrinsic value and definitely worthy of further research. The company’s next report to shareholders is due in the next couple of weeks (has to report to ASX by end of September), and I await it with great interest.

Things to like

  • Big enough market cap of 2.875Bn to be in Top 50, but its not even in ASX300.
  • Only covered by one stockbroker (which is great)
  • Very diversified investments not limited to construction materials, property, energy, coal mining, port operations, pharmacies, pharmaceuticals and health care, telecoms, funds management, rural supplies such as fertiliser, seed and grain, irrigation and insurance and financial services. It also has its own investment portfolio worth around $450m with investments in companies such as BHP Billiton, Commonwealth Bank, Westpac, National Australia Bank, Telstra and Perpetual.
  • Shareholder friendly, pays out approximately 50% of earnings as dividends, so retains fund to invest and has paid out eight special dividends in the last 10 years.
  • Soul Pattinson haven’t raised equity from shareholders in 10 years.
  • Debt/Equity ratio is -45%, with net cash of $1,700m
  • Management have large shareholdings in SOL as well as its associated companies and subsidiaries.

Valuation

Market value
If we add up all the value the market ascribes to Soul Pattinson’s holdings and exclude $350m in costs such as liabilities and operating costs, Total value comes to just over $4Bn. On a per share basis, thats $16.83. Based on today’s share price of $12.18, you are getting $16.83 of value, a discount of 38%.
Book Value
Soul Pattinson’s last stated book value per share (March 2011) was $16.39, so its trading at a discount to book value of 34%.
Net Asset Value
Based on the last stated net assets provided by Soul Pattinson and each of its holdings, and again excluding $350m in costs, I’ve calculated net asset value per share to be $13.65, so company is trading at a 12% discount to net tangible assets.
Discount to intrinsic value
Based on several of my valuation methods, I get an average valuation of $16.72, so Soul Pattinson looks to be trading at a discount to its intrinsic value. With a history of special dividends, 17.5% annual returns, a 107 year history and the many features mentioned above, Soul Pattinson is definitely a company I’ll be keeping my eye on.

Calculating intrinsic value – price equals value

In a previous post I mentioned a few different ways of calculating intrinsic value of a share. Today I’m going to discuss price equals value. Basically this means that the market recognises the real value of a company and its shares, and the value is equal to the price. If you are a believer in efficient markets, which states that new information is quickly incorporated into the share prices, so the market price reflects the true value of a share every moment of every day, then you are probably nodding your head at this point.

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Billabong (BBG) – Is the current price an opportunity?

Billabong is in the business of marketing, distribution, and sale of apparel, accessories, eyewear, wetsuits and hardgoods in the surf, ski & board markets under various brands including Billabong, Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Nixon, Tigerlily & DaKine.

Its been a darling of the Australian share market for years, but its performance is slipping. Net profits have slid each year for the last 3 years, and judging by analysts forecasts, there’s not going to be much improvement in the next 1-2 years either. The market has recognised this and the share price has fallen from over $17 down to $6.14 as at 20th May 2011. Read more of this post

Fenner & Aveva reviews

I was recently asked to have a look at two UK listed companies, and Mike has kindly allowed me to share my thoughts on them on his blog. The two companies in question are Fenner & Aveva.

Fenner

First we’ll look at Fenner.  According to their website, Fenner are ‘A world leader in reinforced polymer’.  One of the main things they make is conveyor belts, and other drive belts, servicing the mining, forestry, aggregate, paper handling and many other industries.

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How I rate a company – Part 1

After analysing approximately 100 listed companies, I wanted to find an easy way of giving the company a score based on their historical financial performance. I came up with a list of 12 financial hurdles. Companies get a score out of 10 for each criteria, which I then add up and divide by 12 to give a score out of 10. Guess what? Not one company I’ve analysed managed to score a 10 /10.

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