Follow-up and portfolio update

1kr50öreIt has been a while since I published anything. Therefore I thought it would be a good idea to sum-up what has happened in the portfolio over the last couple of months before I move on to post new stuff on the blog. The attentive reader will notice that two companies in the portfolio (IndigoVision Group plc and AG&E Holdings, Inc.) have “expired” follow-up dates but are not included in this follow-up and portfolio update post. I will get back to these two companies in the future.


Hargreaves Services plc (sold 2017-05-17) was one of those net-nets with favourable going-concern characteristics but was nevertheless valued well below liquidation value by Mr Market (see checklist analysis in Swedish). The fact that the company is/was a coal-producing and -distribution company most certainly had something to do with the valuation. However, as with most net-nets the pessimism and negative factors are often well priced into the market valuation. Small improvements can therefore have huge upside effects. In the case of Hargreaves the future started to look a little bit brighter during my holding period. For example, the company experienced increase in both price and demand of coal and substantial assets on the balance sheet proved to be more valuable than their current stated book value. Over my thirteen month holding period the stock went from 166 GBX to 328 GBX and from a valuation perspective the company went from a net-net to selling just below its tangible book value. I concluded on the follow-up date that the margin of safety no longer was in place as a result of the increased share price in relation and that I should sell my position. The return after tax, currency effects and brokerage fees for Hargreaves amounted to 93%.

Arden Partners plc (sold 2017-05-26) shared many similarities with the Hargreaves when bought. It is/was a British company with good going concern characteristics while simultaneously selling well below liquidation value (see checklist analysis in Swedish). Also, similar to Hargreaves the company was conducting its business in an unloved industry. Arden is/was a small in this case a stockbroker that provides a range of financial services to corporate and institutional clients. However, unlike Haregreaves the outlook and corporate fundamentals for the company didn’t improve during my holding period. To the contrary, the liquidation value eroded and the company’s operating losses increased. Right on time to my follow-up date the company announced that it intended to issue new shares worth approximately £5.0 million. For a company with a market value of £13 million that would result in a pretty hefty dilution. For me this was the final nail in the coffin and I decided to sell my position on the follow-up date. However, with a large portion of luck, the return for my Arden position was more positive than what the above description seems to suggest. The return after tax, currency effects and brokerage fees for Arden amounted to 27,5%. Should I have held my shares the outcome would have been even more positive as the issuance of new ordinary shares was done at a price of 40 GBX. This was well above the price which the stock was trading at and the price I sold my shares at (33 GBX).

McCoy Global Inc (sold 2017-06-06) and the position I initiated in the company in May 2016 was largely driven by the same rational as with my position in Hargreaves and Arden (see checklist analysis in Swedish). Unlike the two early candidates McCoy is/was a Canadian company in the business of oil and gas, more specifically the company provides equipment and technologies used for making up threaded connections in the global oil and gas industry. Initially it looked that I had made a really bad call as the price went south and the stock traded as low as 1,41 CAD in November. However, as oil prices started to once again rise and an improved backlog was announced in the Q4 report the price moved back up to the level of my initial buying price. Although there were some positive signs in the Q4 report the margin of safety had disappeared and a sale was inevitable at the follow-up date. However, once again I got lucky just in time to my follow-up. In May management decided that the company’s shares were undervalued and a 5 % share buyback program was announced. The return after tax, currency effects and brokerage fees for McCoy amounted to 11,3%.

Associated Capital Group Inc (sold 2017-06-08) is the only special situation case included in this post although it could also be described as a deep value case selling below cash value. Associated Capital was a conviction pick of mine with a thesis best described as a free lunch created by the spin-off from Mario Gabellis company Gamco Investors Inc (see the first part of the analysis posted in Swedish, part one). The special situation part of the thesis played out well and in line with my analysis with one exception. I made the mistake of concluding that the valuation multiple the company was trading at that point in time would remain the same and that the market would not place a discount on company’s operations in the future. However, the outcome has been the direct opposite. In other words, the market seem to value Associated Capital to a higher extent as a holding company than an operating business within investment management and research. So, while book value has increased, in line with my thesis and predictions, the non-adjusted price-to-book-multiple has decreased from 1,02x to 0,94x. Based on this outcome and the fact that the company is no longer a new/forgotten spin-off I concluded on the follow-up date that the upside, related to the special situation part, had played out. This was the first part of my rationale for selling Associated Capital on the follow-up date. Again, I could be wrong on this point and one should note that $3,71 per share related to the GAMCO note still remain to adjust book value as of Q1 2017:

ac q1 BV

Unfortunately, I also made a second mistake / wrong prediction. In concluded in my second part of the analysis (see the second part of the analysis posted in Swedish,  part two) that the profitability levels of Associated Capital in the presence of Mario Gabelli would likely improve. So far that has not been the case, although assets under management (AUM) has grown. Furthermore, Mario Gabelli has stepped down from his position as CEO of Associated Capital which made my conviction regarding future profitability growth for the company to decrease. So although the downside remains intact the upside has unfortunately disappeared in large parts in my opinion. Or to be more specific and sincere, Associate Capital is now placed in my to-hard-to-analyse-pile. This is my second part of my rationale for selling Associated Capital on the follow-up date. The return after tax, currency effects and brokerage fees for Associated Capital amounted to 16,7%.

Sanshin Electronics Co Ltd (sold 2017-07-13) I struggled with quite a bit whether to sell or hold. Sanshin was my first J-net and as with most Japanese net-nets the fundamentals looks to be good to be true when you factor in what they are selling for (see checklist analysis in Swedish). After my thirteen months holding period Sanshin still looked good. The company is still selling below liquidation value, P/NCAV = 0,77x, and the business is still profitable. However, as of today the company is trading well above its historical liquidation multiples and the P/NCAV = 0,43x I bought my position at. This is mostly attributable to the fact that the share price that has increased about 75 % (including dividend) over the last thirteen months. So partially, my rational to sell the Sanshin position was a decreased margin of safety and a current above average historical valuation (both as it relates to assets and earnings). Also, when I bought Sanshin I made two mistakes that a sale of the position would “correct”. The first mistake was to deviate from my focus on small obscure deep value companies. With a market value of 42B JPY Sanshin is not exactly small or obscure. In other words, it is harder for me to justify and hold Sanshin after the hefty increase in both price and valuation multiples than if the company had been a small/nano-cap J-net. The second mistake was my position sizing of Sanshin. In this case the my position size was too small. I will try to not make the two mistakes just mentioned in the future. The return after tax, currency effects and brokerage fees for Sanshin amounted to 64,3%.


Macro Enterprises Inc. (bought 2017-05-12) is a new type of deep value candidate in my portfolio. It’s a raNAV (readily ascertainable net asset value) candidate not a NCAV (net current asset value) candidate. I wrote some sentences about the importance of raNAV and the differences to the classical net-net/NCAV calculation in my latest post about BEBE (see post Lessons about leases and liquidation value: a bebe stores, inc case study).

I probably won’t spend any time putting all my notes, spreadsheets and links about Macro Enterprises into a whole post/analysis. Reason being that it has already been done to perfection by two other people. I recommend you read the Macro Enterprises analysis by Jan Svenda if you have Seeking Alpha pro. If not, I would highly recommend that you read the analysis of Macro Enterprises included in the sample newsletter for On Beyond Investing and that you listen to the episode of The Intelligent Investing podcast were the author of On Beyond Investing Tim Bergin talks about the company and the investing case.


Disclosure: The author is long CVE:MCR when this analysis is published. Also note that CVE:MCR is a nano-cap stock (44 M$ in market capitalization). The trading is illiquid.

Sanshin Electronics Co Ltd (TYO:8150)

Q4 2015 – 840 JPY – TYO

1kr50öreSANSHIN ELECTRONICS CO., LTD. is principally engaged in the trading of semiconductor and electronic components. The Company operates in two business segments. The Device segment is involved in the sale, import and export of semiconductor and electronic components, and the provision of technical services and information related to semiconductor and electronic components. The Solution segment is involved in the sale, import and export of electronic equipment, and the provision of technical services related to information communication systems, among others. As of March 31, 2014, the Company had 12 subsidiaries. – Google Finance

1. Tillräcklig säkerhetsmarginal (kriterium a) eller b) måste uppfyllas):


  • P/NCAV < 0,86x
    • = 0,43x


  • EV/EBIT10 < 5x
    • = 7x


  • P/NCAV < 0,66x
    • = 0,43x

2. Risken för permanent förlust är låg:

2.1 Konkursrisk i bolaget är låg (kriterium a) eller b) måste uppfyllas:


  • Räntebärande skulder/Eget kapital < 20 %
    • = 10 %


  • Z-score ≥ 3
    • = 3,8


  • Räntebärande skulder/Eget kapital < 50 %
    • = 10 %

2.2 Bolagets affärsmodellen är inte helt olönsam (kriterium a) eller b) måste uppfyllas):


  • Positivt balanserat resultat
    • = 34 625 MJPY


  • De aggregerade rörelseresultatet under de senaste 10 åren är starkt positivt
    • = 29 936 MJPY

3. Låg utspädning av antalet utestående aktier YoY och QoQ (< 1 %):

  • YoY = 0 %
  • QoQ = 0 %

4. Risken för oegentligheter är låg (bedömning görs utifrån nedan svar):

  • Bolagets ledning har inte historiskt varit involverad i oegentligheter:
    • = Har inte hittat något vilket antyder att så skulle vara fallet.
  • Bolaget är inte huvudsakligen kinesiskt (verksamhet eller majoritetsägare):
    • = Japanskt bolag med huvudsakligen institutionellt japanskt ägande.
  • Bolagsdata existerar för minst 10 år:
    • = Ja.
  • Bolaget har återkommande skiftat ut kapital till aktieägarna historiskt (utdelning och/eller återköp):
    • = Bolaget har både återkommande givit utdelning och gjort återköp av aktier. Nuvarande utdelningsandel är ca 50 %.
  • Starkt insiderägande (> 20 %):
    • = 0,5 %
  • VD har ägarincitament (värde av aktieinnehav/lön + bonus > 3x):
    • = VD (Mitsumasa Matsunaga) äger 147 500 st aktier (totalt äger insiders 159 720 st aktier). Givet dagens aktiekurs om 840 JPY ger det ett marknadsvärde om 124 MJPY (134 MJPY). Har ej kunnat härleda VDs kompensation, dock uppgår total kompensation för styrelse och ledning till 161 MJPY (tio personer inklusive VD). VD anses således ha ägarincitament givet att han själv inte erhåller mer än 25 % av den totala kompensationssumman.

Klarar bolaget samtliga krav?



Disclosure: Jag har en position i TYO:8150 när denna analys publiceras.