Is JB HiFi going to do a “Steve Bradbury”?

Steve Bradbury was an Australian short track speed ice skater who won the 1000 metre event at the 2002 Winter Olympics when all of his opponents crashed at the last corner.

He only made the final after finishing third in the quarter finals, when the defending world champion was disqualified from the final. His tactic during the final was to cruise behind his opponents, and hope they crashed, as they would be taking greater risks to try to win, and he reasoned that they could crash. Read more of this post

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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.

A review of the top 50 Australian stocks (S&P 50 Index) – Part II

In a previous post, I reviewed several stocks in the ASX Top 50 and found 21 stocks that I wasn’t interested in. So, what about the rest of the stocks? Well, let’s go through the list and have a brief look at each of them.

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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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The first step in picking winning stocks and avoiding the losers

Firstly, there are several warnings I need to make. I’m not going to recommend any stocks to buy as they may not suit your personal needs. I’m not going to tell you how to structure your share portfolio (well, unless you ask, and then I’ll only give you some general suggestions of what I might do).

So, lets jump right in. How do you know which stocks to buy and which to avoid?
Well, I’m glad you asked, because I’ve listed below my criteria and why.

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