UPDATES ON RMS, NAM, KBC, MEL AND UNDERPERFORMING IN JULY.

RMS – RMS has been a hold all year on the blog from the low 20 cents area and recently halted the hot run in the share price it had to hit above 60 cents, by making a placement to institutions at 50 cents despite being cash rich and to the shock of most pundits.

They wanted the money to fast track some development, for the company to have more institutions on the register, and flexibility with the balance sheet. Like most shareholders I would have preferred the instos buy on market! RMS have probably shown their hand that sometime in the next year perhaps they have some acquisitions in mind. Just in case the gold price corrects they thought they would hit the market now for a bit of cash so they can still expand their empire even if RMS shares retreat south of 50 cents down the track. Whilst I have loved being a shareholder in RMS for the last year I feel it does highlight not to fall in love with a great performer in the resources sector. It might be an early small sign that management are getting cocky and greedy in the gold sector and why I am hanging on to most of my gold exposure with trailing stop orders. I only record my RMS holding around 35 cents even though it trades at 57 cents. After seeing the fickle nature of gold stocks in the bull run to 2011, and iron ore for that matter, and some of the poor management decisions at the time I think this is the way to go. A situation like this I know that if I try and sell and pick the top, it will likely be lower than selling on the way down as it breaks the 200 day moving average. In fact, that has already been proven in some ways. I had a parcel purchased at 8 cents that I sold at 23 cents early this year being worried it became a large holding and that it could retreat. Fortunately, the other half of my stake I have let ride, and currently the 200 day moving average of 35 cents is a lot better than that! The vast majority of my investments I try and identify targets with low downside and possibly may not have huge upside, so for those I would never use this approach. Occasionally though some stocks I own with a lot of upside potential (but also higher risk on the downside) requires a different approach though I feel. Gold producers generally fit this category.

NAM – has been a holding of mine for nearly a year from 26 cents and I was trying to sell at 35 cents last week because I feared the long touted capital structure change was taking too long, until I read the latest announcement within its AGM release. Here is what I felt was the key line..

“Extensive work has been undertaken with Morgans in reviewing Namoi Cotton’s capital structure for the purposes of supporting the implementation & delivery of the business strategic plan”

They are now formalising this change and we know it will go to vote. The existing co-op structure has long been thought by many as a huge headwind for the stock, yet reading news snippets over the last year or so there were very strong hints changes were in the pipeline which is why I bought. So it was no surprise to see stock in the 30s being snapped up quickly after this release. It was up 12% for the week to 37 cents on much larger volume than normal and now I will hold for a while.

KBC – I bought this stock about a year ago at 17 cents and it seems everything that can go wrong simply does for KBC. From having WAM put forward an attractive corporate restructure it now is becoming even more certain that Nicholas Bolton is not too fond of WAM. That is probably why the John Wylie led firm sold their stake to Bentley for 18 cents and left the other shareholders out to dry. It is clear that the Bolton stake was in support of Bentley and now they have seats on the board. Small volumes traded on Friday to drive the stock price down to 13.5 cents. I found it difficult to see that Bentley would have its supporters, but then again Nicholas Bolton can be an interesting character himself so nothing should completely surprise.

I am relieved to get rid of half my stock as I posted recently at 17.5 cents but now that to do? As always first I look at the downside. The worst case is KBC becomes the same sort of company as BEL, yet it is important to note 2 key factors. One is it is at least twice as large (important as in relation to the high management costs BEL runs versus its market cap). Secondly we also must acknowledge BEL does not have the same control over KBC yet that it possesses running BEL itself, though in the future that remains a chance. As it stands though WAM still has nearly 17%, I think Samuel Terry may have close to a substantial stake also.

So based on those 2 points, assuming the market has a negative view based on the Bentley factor, surely it should not trade on a larger discount to NTA than BEL? Conveniently by chance both probably have similar NTAs as I write, BEL will probably slip below 20 cents because of the reduction in value of their KBC stake. KBC last reported NTA of 20.9 cents and I don’t foresee it dropping much below 20.5 cents when it gets updated for July 31. BEL often trades at a 35% discount so on 20 cents that would be at 13 cents, yet on Friday also closed at 13.5 cents which was the same level KBC closed at after the news. That is probably already a discount to NTA of 35% BEL often trades at but currently at a greater discount than BEL. So the market is already implying a Bentley like run company, yet worse.

So I don’t plan on joining some small investors on Friday and selling at 13.5 cents. Like what has transpired so far, there are many different scenarios one could imagine from here. I don’t have the time to write about them all, so thought I would focus mainly on the risk case above that Bentley slowly gets more control over time.

A more pleasant scenario would be that Bentley sees the process of getting more control over the company difficult, and they focus on getting a return on KBC by returning capital from the KBC NTA from a slow realization of assets. Another positive but unlikely scenario is WAM still see some value in a restructure and is willing to pay around the NTA of 21 cents (their original proposal was talking of NTA in a 15-20 cent range), and Bentley and Bolton are happy to sell at that sort of price.

Yet as I said it would take me a long time to write about all the possible moves from here, and as I have shown this year I would probably be wrong on KBC anyway so I’ll save my time!

MEL – I commented last that despite them spending some of the cash and ending hopes of a full wind up, a partial capital return could be possible. Pleasingly they just recently made plans for a 2.5 cents capital return. With the shares trading sub 5.5 cents recently, and very little cash burn going on, NTA of 7.2 cents of which 70% or so was cash and liquid securities, this was received well by the market. Many shares have changed hands at 5.9 cents since.

PERFORMANCE

As we recently passed the financial year end I have examined far more closely my performance over that period. I was keener to examine it over the weekend after dealing with a dud like KBC I wanted to be a bit more positive! I will go into more depth on the blog at a later date. I don’t see much value copying other blogs and placing fancy graphs of my performance where no one can probably verify it anyway, well unless one personally came over and examined my audited SMSF fund. So I’ll be very brief in that regard, but only as an example for others what a strategy with an emphasis on reducing large drawdowns and some event driven situations in small unloved companies can produce. I’ll try to place the focus on how companies have performed where it has been clear on the blog that I have owned or traded them, so shall try and update a table I produced in May in that regard. That way it is all more meaningful if the figures for stocks mentioned on the blog start to reconcile somewhat versus my personal portfolio that I may occasionally refer to. Most but not all holdings I have been mentioning here. But at least readers can then view the blog performance table knowing they saw the stocks mentioned on here at the time. The reason I bring this up now is in the context of the markets being quite bullish in July and myself definitely being wrong on the market’s direction lately. I was curious to see how I went in July even though I rarely examine the short term like that. I have gained about 3% when the ASX and S&P500 have probably moved higher by about 6%! I am a little disappointed with some stocks during July, but once I finalise the last financial year’s figures I am expecting that the 2 years prior have been in the order of 15%, probably higher last year, in a lacklustre market. But if the market marches along to new highs continually like we saw in July then no doubt my blog and investing style will be even more boring than some may find it currently, in that environment there will be far more interesting people to watch bragging about their success in the markets.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s