$JRS – Cheap but vote against Name / Mandate change, Oil and Gas also Shorts

Brief note on something I have tweeted about a bit and update on what I have been up to…

I have a decent sided position in JP Morgan Russian (c4% weight – if you assume all my other Russian holdings are a 0), it would be a lot bigger – but I already have c 25% all portfolio weight in Russia and there is only so much I am willing to lose if I am wrong on one idea.

The main reason I am willing to risk even more on Russia is that whilst JP Morgan Russian is valuing it’s holdings at a written down NAV of 46p, it’s currently trading at c80p.

If you value the holdings at current MOEX market values, roughly, you are looking at c600-800p depending on the exchange rate – detailed holdings here. The 46p quoted by JP Morgan is mostly cash – and doesn’t include cash held from dividends paid post-war by the Russian holdings, which is in blocked accounts with the shares. Shares are a mix of GDR’s and MOEX. I am not too worried about the details, the big picture is what matters.

I have been told the reason for the low price is because firms refuse to deal in this. IG index – won’t allow you to buy this, Interactive Brokers, won’t allow you to buy it. I-web in the UK, AJ Bell and Hargreaves Lansdown will allow you to buy… Many compliance departments forbid hedge funds etc from buying this – who may be willing to buy it on economic grounds. If you are US based / citizen then you will need to work hard to get a broker to deal with you so you can buy this – if you know how please let me know as I know many Americans who would like to buy….

I have been consistently mistaken on the war, I didn’t think the West would support Ukraine as much as they have, nor did I think Ukraine would do as well / Russia would do as badly. This has continued for far longer than I expected.

There is real risk something like Russia uses a nuke / chemical weapons, the West seizes Russian assets – in blocked Western accounts to compensate Ukraine and Russia seizes these assets, this leaves you with roughly a 50% loss at current prices, given the upside, not a bad trade in my view.

I tend to still think a deal will be done. Ukraine is not blameless in the conflict – they breached Minsk accords repeatedly. Russia is looking for a way out. I don’t believe the narrative that Russia can’t be trusted / that they will break any agreement. They did breach agreements when they intervened but equally so did Ukraine when they overthrew an elected pro Russian leader and didn’t keep the agreements in 2015. If Putin was so inclined he could have likely taken the whole country in 2015/2016…I remain convinced the narrative that he wants to reclaim the USSR is simple propaganda. It’s often quoted that he said the collapse of the USSR was one of the “greatest tragedies of the 20th century”. It’s far less often quoted that he said “whoever doesn’t miss the USSR has no heart, whoever wants it back has no brain”.

The other point is Russia is not an insignificant country, its 11% of the global landmass and a bigger proportion of production / resources in Oil, Gas, agriculture and various minerals. It can’t be shut out for too long… Much of the world is not actually on the West’s side and is still trading with Russia…

On the moral aspect of investing in Russia, I have absolutely no problem with it. Here you are buying a basket of Russian stocks. They already exist, they will exist if you own them, they will exist if you don’t. No new money is moving to Russia. You are not supporting Putin or the war in any way by owning an asset in Russia. On the contrary, by dumping your ownership of assets at fire-sale / non market prices all you are doing is enriching someone else at your own expense. Your action affects nothing in the real world, other than your wealth.

It’s possible to argue that a higher secondary price enables shares to be issued – but none of the companies in JRS are likely to issue any equity and haven’t for years…

I believe it increasingly possible a nuke will be used in Ukraine, in that event JRS may trade down to it’s cash value or thereabouts – giving you, in effect, a free option. Russia is losing and I doubt they will back down / or have any other option, if they want to keep Crimea. This matters more to them than us, but it’s very uncertain, I recently cut my weight in this as a result (and bearing in mind) my existing large Russian position). I may well add more on lower prices… I don’t believe use of nukes in Ukraine necessarily leads to cities being taken out, but it might, and it obviously increases that risk. I also don’t accept that a tactical, or even strategic nuke being used against Ukraine leads to WWIII, it could, if the West acts in an unwise way but equally might not.

Nevertheless many people disagree with me, on morality and investing in Russia I believe they are acting irrationally. I am in no doubt, I will get at least one hate post/message as a result… I don’t believe any topic shouldn’t be invested in or considered. I was born into a family without very much money and if I am to improve my situation I need to take advantage of every opportunity the world presents to me. It’s that or be an employee / servant / slave for the rest of my life, usually to those born into families with far more than me, or who are wired in a way that let them better tolerate employment / stress…

The main point of this post wasn’t to outline JRS or discuss likely outcomes of the war but to encourage all holders to vote against the name change / change in investment mandate.

JRS have proposed their mandate be altered so that they can:

Invest in a diversified portfolio of quoted investments in Central, Eastern and Southern Europe (including Russia), the Middle East and Africa


The issue arises due to the uncertainty as to what the Russian Assets are worth. Any raising of equity at / above NAV could dilute me significantly. I believe the NAV is c 600-800p, not 40p. I believe the best solution for the fund is for it to be put into liquidation, cash – ex a few millions for running costs then we will see what it is ultimately worth when the whole affair is over….

I don’t trust JP Morgan. They are likely embarrassed to have been involved in running a fund investing in ‘evil’ Russia. It’s easy for them to screw me over in multiple ways, particularly if this becomes a ‘live’ investment trust again – issuing shares, transferring assets at a low price – albeit over the ridiculous price it’s in the NAV for, giving up the assets, who knows? They are already depressing the share price, by, in my view, using an erroneous valuation. I don’t know how they managed to get their auditor to sign off on it.

If you own this I urge you to vote against the change in the investment mandate, given the risk there is no advantage in allowing them to invest the cash. Far better to wind this thing up so you don’t get screwed over. I’d also suggest voting against all resolutions going forwards to reappoint directors due to their handling of this. I believe they had authority/ funds to buy back shares but chose not to!

On another topic aware I haven’t posted much of late – been investing in Oil & Gas, or trying to… I have to diversify, taking up my time as these stocks are subject to random issues I hold (in order of Size PTAL, SQZ, JSE, HBR, KIST, 883.HK,GKP and a tiny, tiny bit of IOG. They are very, very cheap at current oil and gas prices, PTAL is on a forward PE of 4, has $178m cash / receivables (154m vs £394m MCAP). Serica also has a lot of cash, £418m+ vs MCAP of £916m rough PE of 4, talk of a raised windfall tax is depressing the share price but if the government wants investment they can’t raise the tax too much… JSE – £139m cash, MCAP £307m and a PE of 2-4 depending on production, which is currently reduced due to operating problems (a corroded tank – that I can’t imagine will be too hard to fix). I also bought some GKP – oil so low cost it practically pumps itself, yield of 20-30%+, but in Iraqi Kurdistan, with a license best regarded as disputed – with what I believe is serious expropriation risk. I have mitigated that risk in a way only available to retail, I don’t want to write about it here but DM me if you are interested…

Pretty much all of these are down vs when I got in but with cash adjusted PE’s of c2 either the oil price plummets sometime in the next 2 years, they waste their cash piles on M&A / capex / management or I make a lot of money. I suspect these stocks are all down due to ESG / woke investing concerns. Their shareholder registers are full of sharp-elbowed hedge funds, it could be a while before more mainstream money joins in, if it ever comes back. Even if it doesn’t value hedge funds and value retail can push these above the current low valuations given even a slight change in sentiment. I have a couple more I want to add but am currently researching – at the moment these are around a 22% weight – want to get it up a little / shift around a little bit… The good news for you is I am pretty much underwater on all of them so you can get the satisfaction of a lower price than me!

I also have a short on SMWH (I tried to trade it, gave up and am just letting it run). Its on a 2023 PE of 15, but that assumes profit doubles from 2022, which I doubt. Their offering – newsagents at railways / airports is extremely expensive – £1 for a chocolate bar vs £1/£1.25 for 3/4 in a supermarket. Will a stretched consumer cut back? I think they will. This, coupled with higher utilities costs to me, means they should be trading far lower. I am also short CPG – compass for much the same reason, though it may be more resilient as an outsourcer with cost+ contracts 2020 results show that they are not immune to dips in sales and with the move to WFH at least for the moment, and businesses are likely to be tightening their belts and offering fewer free food bribes to entice people back into chains the office…

Final reminder – if you hold JRS – vote against all resolutions, do it ASAP, this stock is dominated by many small shareholders so if you act you have a chance…

I post more often on Twitter – follow me there @deepvalueinv (also here – http://www.deepvalueinvestments.wordpress.com)

As ever views / ideas / comments welcome. Particularly the reason why these oil companies are so cheap!


9 thoughts on “$JRS – Cheap but vote against Name / Mandate change, Oil and Gas also Shorts”

  1. Thanks for posting the JRS idea a few months back. I bought a bunch at 66p and sold some at £1+ to recoup my initial investment. I now have a freeroll shot at a multibagger if the Russia/Ukraine situation ever gets resolved.

    Equating voluntary employment to slavery is a little ridiculous don’t you think?

    1. Hi Gary, well done on JRS, wish I had traded it more – not really how I invest usually – but shows the advantages of that approach.

      I dont agree equating ‘voluntary’ employment and slavery is ridiculous.

      The average person can’t quit their job and support themselves for any length of time. They have limited options of where they can work, often very limited. Employers collude to maintain hours / keep wages low. In effect they are servants and its near impossible to escape that status. Even for me, with 10-20+ years of expenses saved up I can’t really quit, do what I like for the next 10+ years then get another job at a decent pay rate. I am simply not employable – as a 50 odd year old who hasnt worked for a decade, its very difficult for me to get a job I can tolerate now. I am not physically in chains, but the net effect is the same.

      1. Limited options? There are millions of job vacancies currently and people also have the choice to join the 5.6 million who have started their own business, or the 4.6 million self-employed. You say it’s impossible but millions of people appear to have done it, including multiple members of my own family.

        Employers cannot collude to keep wages low. Free market forces prevent this. If it were happening, a smart employer would break ranks and offer higher pay, immediately attract all the best talent and steal market share from competitors.

        You have saved enough as a free man to live 20 years without working, so you’re already 20 years of freedom ahead of a slave. You also had evenings, weekends, and holidays during your entire working life to spend on leisure as you please. Contrast that to the slave, who is whipped back to work whenever he stops. Not the same AT ALL.

  2. There are limited options – of those vacancies how many are at a decent wage rate ? How many are WFH/ PT ? You could say that is being too picky – I would argue the opposite – if I am going to spend the bulk of my week working somewhere I want it to be an absolutely top quality experience. The vast majority of jobs are not fit for a human being with any self respect.

    My experience is people who try to retrain / have non conventional experiences/paths really really struggle. Employers want someone who graduated, went to work full time, ideally in an office then progressed in the ranks, no other choices are permissable, and if followed almost always result in markedly lower wages.

    Large employers do collude – tech companies were found out doing this a while ago – https://www.npr.org/sections/alltechconsidered/2015/01/16/377614477/tech-giants-will-pay-415-million-to-settle-employees-lawsuit

    The entire public sector is a monopsony – 30-40% all jobs – depending exactly on where you live.

    Freedom in evening / weekends / holidays, whilst working to benefit a small elite is far below what I consider remotely acceptable. I’ve actually worked part time for most of my working life – but it still doesnt work for me. I need 100% control of my time.

    Slavery wasnt usually 24/7 work / whipping, it could be but wasnt universal.

    Glad you can accept employment – must make life a lot easier but for me it’s an appalling way to live. I’ve despised every job I have ever had, the whole system is obviously rotten to the core, I am surprised more people don’t see it and attempt to fight back.

    1. Show me a system where everyone can have a high paying job that consists of doing whatever you want, whenever you want, wherever you want, and I’ll fight for it alongside you!

  3. No position in JRS currently (I don’t see way to wave capital controls in foreseeable future), but 100% agree with your view how to maximize shareholders’ returns.
    Oil: they are cheap because of ESG etc., but another reason might be simple idea – cyclicals are the most expensive when they have lowest PE! That have been rule of thumb for a looong time. Noone wants to be sucker to buy in just before cycle turns. Especially from macro view there is potential for recession->demand falling, supply side is not appreciated enough IMHO. I would argue ppl stress possible recession next few Qs and miss bigger picture(not in all recessions oil demand falls, but GFC is in ppls minds [recency bias]).
    I am very bullish oil and I think we are in a multiyear bull market.
    Currently my favourite micro cap is Arrow Exploration. Very small, growing fast, screens terribly right now. EV ~$35mm, right now producing 3k boe/d, according to mgmt with brent @$70 that equals to annualizaed $40mm cf. 2023 capex $24m

    1. I agree cyclicals appear cheap when they have the lowest PE. But low single digits when adjusting for cash… We get a couple of years roughly current oil / gas prices and MCAP is covered…

      I think its more ESG TBH…

  4. I’ve bought Ukranian Oil & Gas Enwell Energy who used to be called Regal Petroleum.Their founder has a very controversial past and my suspicion is he will have done a deal with the Russian military to leave his business alone.

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