A COUPLE OF SALES & POTENTIAL OPPORTUNITIES WITH DEMERGERS

Just wanted to mention I will be unlikely to follow the stocks MEL & PTB as recently have ceased holding after being in both for about a year. Both I would describe as stories where nothing unexpected occurred yet the market moved from a cheap valuation to fair value.

MEL was a very small company consisting of cash backing per share of about 7.2 cents at the time I mentioned but traded at 5.4 cents. They did invest some of the cash through the year but made a capital return of 2.5 cents. I sold at 4.8 cents ex the capital return so this was around current asset backing. Over 30% returns were achieved by the discount to asset backing being removed. The new major shareholder may wish to seek full control at some point, but I am unclear on this so thought it was time to move on.

PTB I have mentioned a few times throughout this year going back to January where it traded at 38 cents. During the year, they paid a 5 cent fully franked dividend and today I was able to sell at 60 cents. It is thinly traded so unfortunately it was only a small position yet a 71% return makes it worthwhile. I may have got lucky and presented with an early xmas gift today with the buying depth full of small orders. Although time will tell as I wouldn’t say 60 cents is way over-valued but just felt there was a bit too much excitement from small investors today. I can’t confirm it but I was alerted to the possibility a certain publication may have tipped it as a buy, which made me sceptical today’s buying excitement would hang around for too long. If someone did read this and decided to buy at 60 cents today as I said it shouldn’t be a disaster as the valuation is not too excessive. One should be careful though following tips like this and not to pay too much getting set on a stock. Despite the big share price recovery in 2016 for PTB, I would describe the company’s performance and dividend declaration throughout the year well within expectations.

SPIN OFFS

I have commented on a few occasions spinoffs can be an area to search for opportunities. Unfortunately for me 2016 was a wasted year in this area as I was probably the only fool that lost money on S32, and didn’t fully capitalize on CYB.

It came to my attention yesterday that Sandon Capital’s latest campaign is that Iluka (ILU) should consider a demerger. Now given my comments above about PTB and that investors should not get too excited following tips, this may sound a bit hypocritical in that today I became a holder of ILU. Their work on ILU seemed convincing. I have spoken highly of Sandon’s research but investors should read all the disclaimers on their research as well as my blog. I also wanted to make the point that even though I agree with some of their ideas, I did count over 30 holdings in their annual report and think ILU is the 5th where I have also been a holder. It probably came at an opportune time for me after some recent sales, and in an ideal world I didn’t mind increasing my exposure to the commodities sector after cutting back on some of the gold producers a few months ago.

Another reason I thought I would mention that today is that it is quite topical given the announcement from Origin Energy (ORG) on their plans to go down the spin-off route via an IPO. I haven’t purchased this yet although it does look tempting as their plans seem to make sense. If I don’t become an owner soon I’ll at least watch closely over the next few months and perhaps even post IPO the spin-off entity may present an opportunity. Although it is possible a buyer may intervene before then and offer more than what they expect in an IPO.

CASH

Although some cash has been raised via exciting MEL & PTB, (even after adding ILU), it hasn’t been from a premeditated plan to boost cash levels. Rather I was somewhat surprised of the buying interest in MEL & PTB of late. After adding ILU, I am also working another couple of buy orders and hopefully will get a chance later in the year to mention them although one in particular is not very liquid. Thus I expect my cash equivalents level to be broadly maintained in the 25-30% range which is fairly typical at times for myself.

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