SSM, TTS, UOS & Currencies.

SSM – I took some profits on half my holding around 79 cents in the middle of the year after being in the stock since the previous year when it traded in the 20s. I didn’t have a strong view after those large gains whether the stock was particularly cheap or not.

From that point of time I have continued to hold the other half parcel with a trailing stop. Late December they announced a contract to design and construct broadband infrastructure for the NBN’s new Fibre-to -the-Curb (FTTC) technology. Works are valued at approx. $120 mill over 2.5 years. In this sector, there could be the temptation to bid for work where the margins are dangerously low, yet the way SSM has been managed over the last few years I think it is fair to give the benefit of the doubt there. Prior to this I was already looking at some earnings forecast of 8 cents per share for 30/6/18. When you consider the cash on the balance sheet already, which will likely be boosted further significantly over the next couple of years, and consider it on an EV basis, then consider the potential of the contract just mentioned I think it comfortably justifies the stock to once again be above $1 after recently correcting to 90 cents of late. I now don’t see the need to run a trailing stop on this stock as I am quite comfortable with the view that under $1 is inexpensive. Another factor in arriving at this view is I recently noticed when attending the Thorney Investment Presentation in Melbourne that they were increasing their already large position, and also that directors had been buying some significant amounts.

TTS – I didn’t consider it a surprise that the board has favoured the TAH bid over the consortium. Initially this news saw the stock fall 3% but I think the serious money has also acknowledged that this was no surprise and doesn’t change the odds that there is still bidding tension in this process that could result in a higher price from a range of scenarios. Hence the shares have mostly traded $4.50 and even higher since I first mentioned them here at around $4.40.

UOS – Late December also saw UOS give profit guidance for the end of 2016. It has been a good year owning the stock as with dividend the gain has been in the order of 32%. Perhaps more pleasing than those numbers is to see this profit guidance announcement come out and continues to highlight the strong operational performance, and underlying value in the stock. At the closing price of 63 cents, I am not necessarily sure the stock has become more expensive relative to their earnings prospects than when I thought it was cheap at the beginning of 2016 at 50 cents. Despite the AUD/MYR currency movements being a headwind for their NTA in 2016, it will still come out well. If they continue to deliver as usual in 2017 and then even the AUD/MYR weakens I wouldn’t be surprised if 2017 was just as fruitful in terms of total returns for shareholders.

Currencies

Considering the above comments on AUD/MYR, I should make the point which I neglected to do last time I touched on the subject of currencies. I posted some charts and made the comment that with the strength in the USD of late that there is not the clear signal the Australian Dollar is expensive on the more longer term quantitative fundamental models. This is probably a change from previous years. Yet I should have also pointed out recent weakness in the Australian Dollar has been more against the USD as opposed to various other currencies. A few months ago, when AUD/USD traded above 75 I made some investments in USD cash, the USD ETF on the ASX, and AGF (a wind-up play with USD exposure). Now with the USD strength of late these exposures have nearly been all exited. There is just about 20% in run-off mode within the AGF investment that has USD exposure, with the bulk of this being paid back or at least converted to AUD and to be paid back shortly.

Just to pick out a few quick comparisons, the AUD is about 5.6% lower than the recent high against USD about 2 months ago, but this is not the picture against other currencies.

For instance against:

AUD/Malaysian Ringgit UP 0.3%

AUD/Yen UP 3.9%

We have seen smaller declines against these currencies when compared with the 5.6% correction at the time of writing against the USD. For example:

AUD/Euro – down 1.6%

AUD/British Pound – down 5.2%

AUD/Singapore Dollar – down 2.6%

AUD/Thai Baht – down 3.6%

Now this link is more just for a story of interest and please don’t take it as a tool I use to make decisions. As I recently said I am not that interested in this point in time trying to add much value out of currencies. I just thought it interesting with the way the USD has been strong of late. Yet I suppose if the AUD were to once again climb back to that 77 cent level where it seems to have trouble, rather than look at owning USD the next time maybe some other currencies may be worth examining.

http://www.businessinsider.com.au/chart-the-most-overvalued-and-cheapest-currencies-in-the-world-right-now-2016-12

I just found it interesting that both AUD & USD are coming up amongst the most expensive, which kind of matched my intuitive thoughts that I am not a great fan of either right now. The other 6 I plucked out above were rated mostly in the cheaper half of the universe in the article.

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