Porfolio Review Q1 2019

Quick Portfolio Review – Q1 has been pretty poor for me – up 1.3%. vs 9% for the FTSE All share.

This is despite being up at various points.  My general policy of not runing a stop loss has hurt me.  It might be time on my more liquid holdings to consider putting stop losses in.  This is very much a function of where we are in the cycle – likely near the top / end and not a general policy.  Whilst some people would say that not having stop losses is irredemably reckless I would disagree.

My psychology is such that it is actually quite easy for me to admit / think I am wrong and get out.  I don’t feel an particular psychological pain in doing this, unlike most.  I feel far more pain holding all the way down, but often, particularly in the more illiquid stuff I hold this is the correct thing to do. My stuff is generally thoroughly researched / thought through, and I shouldn’t change my mind until the facts change, price is often largely irrelevant.

This isn’t to say the general reader should run without a stop loss.  Most investors tend to optimism / thinking holdings will come back regardless of news.  I tend not to think like that. I have to force myself not to sell, even when things are down a negligible amount.

I still have c 30% in Cash/ Gold and Silver.  This is likely to drag on performance unless gold/ silver go on a run.  I am not too worried.  I hold this to preserve wealth and diversify away from holding GBP.  I also include in this my holding in TAU – which is giving me back roughly half what I paid for it, but also a position in a new venture of which I know little. I also include PVCS in this (discussesd below)

The next position is Assetco (14.4% weight).  This is one I have quietly watched for years. It’s an Abu-Dhabi fire brigade training outfit with a market cap at offer of £42.7m and a book value of £29.9m (lots of cash/receivables), along with a marginally profitable operating business. Where it gets interesting is it has been awarded £33.4m worth of damages from an accounting fraud paid into court by Grant Thornton.

I bought on the initial judgement but then bought a touch more than I otherwise would/should after misreading the RNS.  I thought the judgement couldn’t be appealed, but it could.  This of course, could take years (the judgement accrues at 7%).  It has already been to the high court. However, I analysed all appeals from high court judgements over the last couple of years.  It seems (roughly) 2/3rds don’t get permission to appeal, and even the third which is appealed, they usually don’t get very far, they aren’t often wholly overturned . I also read the whole judgement – which to me, as a non-lawyer, seems sound. So I think the market’s valuation of the judgement is a little harsh and it should only (say) be discounted by 25% at most giving a fair market cap of £54m or north of £4.40 per share.  The company is dominated by Harwood Capital (48%) Lombard Odier (27.6%) and Ingot capital (19.7) – so I am pretty confident of getting my money back when this is resolved.  As you might imagine this is very illiquid so not one for people with serious amounts of money. I didn’t post at the time as I wanted to quietly buy more and then the price was too high to be interesting.

Next biggest holding is Foundul Proprietea, which I like and have held for years.

Then ALF – 6.3% again I bought this back in 2016.  I must have already doubled or tripled on it, at least.  It is still trading at half NAV – confident there is more money to come.  Much depends on if Brazil pays its Electrobas debts.  I think it will and the discount they have put on the funds is unwarranted.  This shouldn’t be looked at that way – it will either pay, or not.

GPW – 4.2% – not much has happened since I wrote.

JUST group (4.1%)  – this has been a bit of a disaster falling over 30%, I think due to a surprise equity placing along with convertible debt.  I thought this was in the price but got it very wrong.  I bought a bit more at 60p. Not tempted to sell at this low a fraction of book.

PHN (3.7%) – announced that it is issuing shares in exchange for property from the government- could be a positive – depends on the price of the shares – which has not been announced.

DCI (3.7%) – announced results which were not good, but which were as expected – you still get €170m of equity for €56m worth of market cap. Assets are being sold, not at great prices but they are being sold, so I remain reasonably positive on this.

MANO / LIT – 2.6% and 1.9% respectively.  These have done very well – particularly as MANO started as a smaller position then grew.  I haven’t posted on them – their story is quite well known in the UK – and they rapidly went up after I bought.  They are litigation funders.  MANO is particularly interesting as it buys insolvency litigation cases from the litigators.  It is expanding reasonably aggressively.  If you believe (as I do) that recession is likely, particularly in the UK this isn’t a bad sector to be in.  Shares in MANO have more than doubled since I got in- so not sure I would add here. I intend to hold both.

PVCS – although I said I sold out of this I bought back in again – it might be worth slightly more than 25p. This should possibly be counted as cash.

Walker Crips (2.1%) – has done very badly, it is still very cheap.  You get 9.8m of NTAV for a market cap of 11.1m.  Problem is they are marginally profitable and seemingly going no-where. I should have waited before getting in but I am prepared to wait to get out – unless things really take a turn for the worst.

DUPD – 1.87% very similar to DCI – property fund liquidating.  It has cash of $5m, NAV of 33.7m, little debt and a market cap of 14.9m USD. They do have a controlling shareholder – something that I don’t like but they also have another large shareholder who I hope will stop them delisting. The controlling shareholder has offered tenders to the minorities in the past – I am confident they will in the future.

RGO – 1.8% – relatively new to market – Investing in equity linked debt. So when your neighbourhood AIM mining share issues convertible  debt they get the return on the debt and also warrants / royalties / conversion streams – which are not on RGO’s balance sheet.  If the miner does well they can prosper via equity and if not they get nice, secure debt.  They were at a slight discount to NAV last time I looked.  I will review this in a year or two and see how they have done.

4D pharma 1.5% – lost quite heavily on this since entry.  Yet management keep buying, they were published in nature and I am confident it will work out. To look to see what can happen take a look at RENE’s chart –

RMG – 1.4%  – I bought a little of this a while back.  If you think about it, what is the logical / cheapest way to deliver 95% of packages ? One delivery per day.  RMG still have a massive scale advantage, a degree of monopoly and are actually pretty good. At some point I think it will be either taken over, or regain dominance – it will probably be taken over.  I am not concerned with the unions as they simply don’t have the will to fight.  It is more likely that a future Corbyn government might buy it back.

CMCX – 1.1% hasn’t done well. Trimmed quite a bit -. I am a little concerned it’s business model is challenged and the worst is yet to come.  But it is very, very cheap, though could be a classic value trap. Still is potential for this to very rapidly turn around so I am holding for the time being. I will buy again on further, major weakness.

Miners – I have put a bit into a few miners – sector is quite cheap, there is opportunity there but it is new to me – so weights are very, very small

FOX – 1.3% was 1.3%  – am rapidly loosing patience on this – sales have been too slow to materialize. I still hold but am not sure how much longer for. One more year then I will likely call it a day.

SHG -1.9% done well – cut my position a touch on strength. Not sure of their plan to list singida in Tanzania. I maintain my view that catalysts seem likely.

Speculative / learning positions I have put tiny, tiny amounts in SAV/HUR simply as they seem good ideas – particularly HUR, but I don’t have enough experience / knowledge to invest well in miners / oil exploration – so I need to focus the mind a bit by putting a bit of spare change – which will make me pay attention.

SAV (0.3%)- European Lithium producer, amongst others, I have a very, very small position – to try and learn about how these things go.

HUR – 0.3% now this is interesting, but very, very risky.  It’s the project of a guy who believes you can frack under the north sea.  It’s never been done before but he thinks it can be – and I believe him, the opportunity is large – 2.3bn barrels of oil for £900m market cap.  Having said that my weight is tiny, even if it ten bags it will make no difference to performance.

Looking at my portfolio slightly differently it can be broken down like this: (criteria open to debate)

2019 Analysis

Looking at it like this it is reasonably balanced, I think I could do with a bit more bio/ health related stuff, and as ever I like a nice liquidation play. I really don’t want any more little positions – I want to have the conviction to put in 4/5%+ (though possibly not for bios).

I would also like to buy things other people want to buy before they do.  I have done a bit of that with the litigation funders.  One of the ironies of the last few months is the risky stuff – Polish/ Shanta / Romanian has done well but the safer financials – JUST / CMCX have hurt performance – netting off overall.

A further aspiration over the next few months is to get positioned for the next big thing – whether that’s Africa, crypto, or life extension (as Jim Mellon was suggesting at master investor). Any ideas where that is ?

As ever, comments welcomed.


13 thoughts on “Porfolio Review Q1 2019”

  1. Hi Rob,

    Thanks for sharing, very interesting, particularly as you look at some stocks not discussed too much elsewhere! I think I’ll look at CMCX a bit more, looks interesting.

    I hold Crescita, which you might be interested in perhaps, although it is a rather small / illiquid stock. There’s a write-up here:

    It’s particularly interesting when you see the progress being made on Pliaglis post the write-up (royalty revenue levels achieved in Q3 & Q4, sales / development milestones achieved), while the shares are at the write-up price. 2018 results here:

    Drop me a note if you’d like to discuss it more.


  2. Re Dolphin Capital, are you not worried that the are now proposing to extent the life of the company by another 2 years from 2019, with no fixed end date. This, when they’ve a ten year record of destroying value and sucking fees from investors. How do you think of this risk that they never return capital?

    1. Hi Tim, Everything you say is right – but the fees / value destruction should now be limited. I dont think they will get away with never returning capital, their shareholder register is filled with funds who will do something about it.

      They have reasonably successfully sold assets down the last 12 months. I think they will be able to the next 24 and I agree that a bit more development will get a better price.

      The risk they never return capital is in the price I would suggest.

  3. Rob, thanks for flagging up fondul prop a few months back. It’s done very well since.

    Anything with similar bag discount and yield catching your eye currently?

    Do you have any views on Tetragon financial (TFG)? It’s a substantial investment trust on a 40 per cent discount and 6 per cent yield.

    1. Yes FP. has done well – but then so have indices generally.

      TFG are OK – but I didn’t invest as owners had a lot of control – from memory. I should take another look.

  4. Hello Rob, can you remind me why you don’t buy where there is too much owner control. at least, they have “skin in the game”.
    a lot of bad experience? which % are you looking for ideally between owner / fund
    thank you!

    1. If 1 dominant insider controls (say) 35-40% they are effectively impossible to dislodge depending on the rest of the shareholder register.
      Too much power to overpay themselves / do crooked deals etc.

      For an example of what dominant holders can do search my site for RHM and that guy wasn’t that large a owner.

      It is interesting though and my view has softened, if I trust the holder or can be reasonably assured of how they will act.

  5. hello, I just posted this in a UK forum, but I cant see the investment thesis for AssetCo.
    you mention “a market cap at offer of £42.7m and a book value of £29.9m (lots of cash/receivables), along with a marginally profitable operating business.”, but the operating business is for the moment being lost. From december last year onwards, we have expenses (as we seem to keep the personnel) but no revenues, and even if a new customer is found, profitability is not guaranteed.
    Now, if you consider liquidations costs (if company liquidates) plus possible impairment of AR (some AR always get impaired), plus possible operating losses…
    I commented here:

    1. Many, many reasons,
      Burford CFO is married to CEO – makes it uninvestible IMHO.

      Better accounting policies. MANO is a very different business – with huge opportunity, targeting a niche – liquidation claims.

      Less sure about LIT – being smaller gives it more opportunity to move the needle….

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