CYA, NGE, REF, MVT, AIK, AGF, CEE:US, TTS, CLT, SVWPA, APW.

CYA – Still looks quite cheap at 90 cents when the ASX200 is around 5,550. Wilson put out their document and it looks like this will simply be a vehicle with a mix of the WAA and WAX strategies.

They will raise some capital along with it, but this will be modest so I still feel this can eventually trade at a premium to NTA like other Wilson LICs. Lately I see it as being around a 4% discount on some days. Unlike the other Wilson LICs, CYA has tax losses to use to offset future profits.

NGE – Is back trading and the discount to NTA is at least as large if not larger! Kentgrove has purchased as many shares as possible for the time being to go up to 23% and now the company is buying shares via the buyback. If they can grow the assets by more than 10% a year, whilst buying back around 10% at a large discount, there should be minimal downside to this stock and that would go in some way to countering the high management expense ratio. This occurs whilst we wait and hope for some joy on the potential hidden value in the optionality with the royalties. The fund is 100% cash backed NTA of 51 cents whilst the shares are mostly trading sub 40 cents.

REF – Announced a trading update and disappointed with the news of a delay in launch of the new oz contacts website. Having said that the announcement seemed confident this will be resolved in January and the implied numbers of 1800 reverse I wouldn’t say were any worse than I thought the declines would be. Overall a little frustrating in a bull market this stock but still feel you may do well in this buying at current levels under 10 cents. Things have not fared particularly well since I purchased this but we still have cash backing near 8 cents a share. I believe they have franking credits worth quite a bit of that also. The way I see it is they increase their scale in online contact lenses which should make the business a cheap company in a sector with solid growth. Or of course the lack of progress in this shift continues for another 6 months, in this scenario the end game may be the cash and franking needs to go back to the shareholders and the online contact lenses business gets sold to a bigger player.

MVT – Received some extra debt funding with a top up placement on their existing notes from sophisticated investors which I see as a good sign. They also announced two takeovers which can be one of their strengths. The message has been that they are not short of ideas to invest in and the latest announcements have been consistent with that. There has also been a bit of smoke around about a potential takeover of INA. I think INA is a very acceptable investment but for the benefit of the MVT share price I have always felt it needs to come down in weight. If they could exit via a corporate transaction that would obviously provide a big boost. The extra debt finance though in the meantime is useful in terms of reducing the concentration in INA down the track also. I believe the recent takeover of Richfields is possibly being valued conservatively when publishing their NTA. One of the very few LICs these days I am happy to hold even though the discount has contracted somewhat since I bought in June. I took part profits not that long ago with around half my holding because it was larger than most of my positions, but probably regret that. I ended up subsequently buying a little bit back at higher levels.

AIK – Officially stating that the LIC structure will be abandoned soon, which was one of a few key catalysts I identified for this stock early in the year. Not surprising to see this pull back from 18 cents, the highs occurring amidst a decent spruik from WAM. I would guess it should be strongly supported around 14-15 cent range.

AGF – A positive surprise here as money is being repatriated much quicker than they forecast. One of my premises was that indeed this would be the case. AMP was tarnished by this whole wind up saga so I felt they would be inclined to under promise and over deliver here. This has been a very handy returning USD parking spot for me even when the AUD/USD hasn’t done much.

CEE:US – I have mentioned this primarily Russia closed end fund earlier in the year as a play on one of the cheapest global markets in terms of CAPE and other measures, and perhaps to benefit from a rising oil price. I should have bought this back then as it has been a solid performer! Recently I paid about $19.40 here. This will certainly be volatile but for many months now has moved relatively sideways and now looks to be breaking out. I did well on gold shares in the last 18 months even though I bought after the uptrend began so hopefully this can be a similar story. For a small part of the portfolio I believe this can give me a lot of upside potential to help try and match the global indices in case the big bull run continues. I view running high portfolio cash levels and venturing into situations like this potentially a better way to try and match the bull market returns rather than chase what is hot. In some respect this has been validated when we look at how some Australian high multiple stocks have fared since I warned about this theme in July. Chasing performance that way would have hurt, and some fund managers are certainly hurting. Before this year, I think Russian stocks in USD terms had 5 negative years in a row so you can’t accuse this market of being hot! History suggests to me that is usually bullish not only for the first year after such a lean run but at least the second, which will be 2017. If ever we get some weakness in global equity markets I would probably slowly explore small positions in other emerging markets to complement.

TTS – I missed out on buying Tatts early in the year at $3.50, then recently was almost ready to pull the trigger searching around the $4.10 mark and missed again as they received an alternative takeover offer! Third time lucky I am hoping as I bit the bullet on paid $4.49 for a purchase. I did have in mind buying more stock if it dips towards $4.30 which looks quite possible, we shall see. I have heard many opinions, along with Sandon Capital’s that the lotteries business alone may be worth $4 a share. The theme of “bond proxies” has died down a lot since mid-year, but if a tiny bit of that had of been applied to TTS these sorts of numbers were quite obtainable. I can only assume that being tied up with the wagering division, and perhaps the lack of comparables in the Australian market, and investors thinking TAH will take it over without much competition resulted in TTS being undervalued. What has surprised me has been (up until the last week or two) a tendency of the press to focus on the dynamics of the wagering division, given the vast majority of value is in lotteries. Surprisingly I haven’t noticed much being written about offshore pension funds being potentially interested. If the most recent consortium offer succeeds I think there can be an acceptable return from the recent trading levels around in the $4.40. I would expect though that we could have a counter bid from TAH (I see their initial remarks as typical games), even another one from the consortium, or even an offshore player getting involved somehow providing the icing on the cake. I don’t see a lot of downside, if global equities markets tank in 2017 there is a reasonable chance bond yields may start to decline again and an asset like TTS could still be well supported in that environment. I view this as a relatively safe play in the latter stages of bullish equity markets, despite me missing out on buying at much better levels on two occasions. I must put that behind me and be objective and decide based on current opportunities. Hopefully some reader of the blog is far more intelligent than me and has been long the stock since $3.60 when I first mentioned I was looking to own it!

CLT – I am accepting the takeover at 28 cents, too much uncertainty over the bidder for me to hold the lot despite my initial temptation to go down that path. Having purchased mainly in the low 20 cents area and received a 1.25 cent dividend along the way, perhaps I should be more grateful for those returns within a year rather than complain the takeover offer was too cheap.

SVWPA – Perhaps I should have devoted more time to the hybrid space and may have picked this up far cheaper than I did recently, but still feel it offers some value at around $71.50 where I have done some buying. Although it is at the top of a recent range there are arguably some factors that give us more certainty than trying to pick the bottom earlier in the year with this, and make it just as compelling now in terms of risk/reward.

For those not that familiar with Seven Group Holdings and this instrument I would point out that media is not a huge part of the business, although I still concede its importance. Perhaps like some suggest with Fairfax it needs a name change, but who knows maybe that is a tiny reason for this to be on the cheap side. Other investments of the group are in areas where the market was very fearful early in 2016, but as the year is coming to a close it appears as though the worst may be over for commodity related businesses. They have significant exposures to a range of business including primarily industrial services businesses and energy. When reporting for 15/16 Seven appears to have already stabilised in terms of earnings and cashflows and arguably that may prove the toughest point in time for the group. The share price is trying to tell that story anyway. Looking at the history of SVWPA and the share price it maybe that SVWPA still has room to run up. After those results management were comfortable in instigating a buyback of this instrument, and I note shortly after some decent director buying at levels where you can still pick them up now. Readers should do their own research on these as this “hybrid” space has many securities with many different features. One key point is that for the ordinary shares to receive a dividend, the SVWPA must be paid income first. From what I understand the majority holder of Seven shares Kerry Stokes would be very reluctant to stop dividends as this would hurt his own cashflow. Here are some other points that made me examine this security.

At my buy price, it produces close to a double-digit yield in terms of franked income. They pay a margin to BBSW, meaning the holder will receive a higher dividend if rates rise. Although not my base case, over the last few months more are suggesting the next rate rise move is up. If that transpired the cost of servicing this debt would become more expensive making it more advantageous for Seven to continue to buy the securities back. There have been examples in the hybrid space even where the issuer pays a premium to market prices to buy all the securities back. I am not saying this will occur, but if the underlying businesses can improve who knows. I note with interest some recent talk that they may be able to sell their stake in Coates Hire, which would certainly help their balance sheet. I have seen some similar securities not trade as poorly as SVWPA even when they stop paying dividends, so I don’t think the downside should be great from the $71 area. Having said I must concede the lower levels it traded at in 2016 was a shock so I stress DYOR as I could be wrong!

 

APW – No point me laying out the latest in the wind-up battle because I came across a link from Livewire where Samuel Terry Asset Management cover the key points perfectly. In case some have missed it, here it is.

https://www.livewiremarkets.com/wires/34056

The vote is set for January 3rd and I suspect I won’t update the blog until then. I feel I have behaved myself in 2016 so my only xmas gift I would like to see is the wind-up proposal succeeds! Once again if any holders are reading this and hoping for the same, please remember to be diligent and send in your voting forms. Anyone who reads this blog I wish you a Happy Holidays (using my terminology from my last workplace that was acquired via my bachelor of political correctness). For APW holders I hope you also receive this gift.

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3 thoughts on “CYA, NGE, REF, MVT, AIK, AGF, CEE:US, TTS, CLT, SVWPA, APW.”

  1. Hi, Steve, what do you think are the differences between MVT and SNC given they’re managed by the same person? Would you buy SNC at this price? Thank you.

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    1. Hi Sara,

      Gabriel Radzyminksi is the portfolio manager and MD at Sandon so is more heavily involved there, compared to Mercantile. Although I am sure he still has a lot of influence at Mercantile, where he is a director. Mercantile has a different team with a lot of experience including Sir Ron Brierley.

      One notable difference is Sandon is committed in paying out fully franked dividends and still has plenty of franking credits available to continue doing that. MVT doesn’t pay dividends currently. The portfolios themselves are quite different. To get a bit of a feel for the differences I would have a glance at the latest annual reports of both where it shows the holdings at June 30. Stale info I know but will highlight the differences. As I have noted here before INA is quite a large stake for Mercantile.

      I think the fee structure of Sandon may be more expensive than Mercantile. Sir Ron Brierley controls over a third of the shares in Mercantile from memory. Am sure there are many other differences but these spring to mind first. Make sure you research yourself first just in case I’m wrong on any of the above.

      I currently am a holder of both of them. It’s difficult for me say whether I would buy SNC right now because I am a holder from lower levels mid year when the discount to NTA was approximately 15%. Plus all the usual stuff about not wanting to give out direct advice. I may not hold these long term if the discount to NTA closes. Hope some of this info helps.

      Regards
      Steve.

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