January Week 2: Blast from the Past
2022 Risks
Banks, Blackrock & Iiinflaatiiiooon
⭐#CLX #BATS #NRR #TATE
💩#GAW #SDI #BVXP
Updates from: #GAW #TSCO #BNZL #GSK #AAZ
Public Service
My apologies this is dated, but I don't share things here unless I have finished reading them myself, so please excuse me.
Always a good idea to be aware of the risks that are on people's radars, even if you don't agree with their classification.
Can people be greedy & fearful at the same time?
It is good to get a little reminder of some of the things that were hitting the headlines and have since been forgotten about.
Given the inherent uncertainty, I would shy away from using words like "will" but they do have a business to run.
My favourite line which perhaps allayed some concerns in relation to China (and created a whole bunch of others) was "less Mao Zedong and more Elizabeth Warren with Chinese characteristics"
Not appearing there and one I am concerned about for my holdings - consumer squeeze!
Cursory Macro/Market Observations
Bank Results:
Deposits & Client assets growing faster than loans. IB is strong- advisory is strong, Fixed Income slowing down relative to equities.
Expenses rising a lot faster than revenues & on quarter revenue growth slowing - heavy investments in technology!
Macro/consumer environment positive - US Consumer is alive!
Citi is cheap & JPM expensive & Citi is far more global - could be interesting if you believe Banks can execute a turnaround - might get re-rated just because.
Blackrock:
The new vampire squid breaking $10 trillion in AUM - added $1.3 trillion in the year - think there are 13 countries with GDP above $1.3 trillion - roughly the size of Brazil - and the market didn't like.
Interesting to see institutions moving away from passive & index - or I am seeing what I want to see!
A lot of that increase in AUM came from market movements - that can't repeat again surely - or it can. I stand by the view - at current levels (especially in the US which is some 70% of a World Tracker), if not a crash, we are in for a prolonged period of low returns.
10 trillion is the TOP!
Inflation:
I think I am officially bored of inflation - plenty for both sides to complain about - energy though continues its rally which probably isn't a good thing as far as inflation is concerned, given it is quite pervasive but ex-energy, inflation will probably start to reduce from current levels.
Why is the FED raising rates & tapering - I expect because they are worried if they don't act, it won't come down quickly enough to say 3%, which as I understand is above target.
Bit more of a defensive feel to the market this week, but that maybe because financials sector heavyweights did not enamour Mr Market with their results, while QQQ loves the 200 day!
Energy, industrials & materials continue their strength which is very roaring 20s or roaring inflation!
Portfolio Review
Lifted from last week:
2022 where once again I lag behind my chosen benchmark (but not UK's Warren Buffett who invests primarily in the US).
In deja vu from 2021, the portfolio has little or no exposure to Banks, miners, energy companies. Where it does have exposure to a miner, it is a gold miner neighbouring Kazakhstan.
Games Workshop probably didn't help matters!
Europe/UK have been remarkably resilient given the hoohaa in the US.
We're cheap - we know it;
We're materials, financials & energy heavy - we show it!
We're in structural decline but it will all be fine!
Lessons:
There were two adds this week - one of the reasons I wanted to reduce the number of RNSs I read is I am tempted to do things based on my reading. I think one of the things in my lessons was to be less dogmatic & more opportunistic (not added any Energy/financials/materials though!), so these transactions are part of that.
Need to get balance on this though - effectively control number of non-core opportunistic & cash allocation to those.
Good in this week is that both have potential to be treated as core holdings as things develop if/when one in one out is required.
Transactions
Buy CMC Markets
- A lot of the things I would look for in a core holding - large management ownership, high margins & profitability & in the short term, I think they will be a beneficiary of Q4 volatility & a positive trading update.
- Clearly cheap & the non-leveraged business with the ANZ partnership is a growth avenue and offers exposure to Australsia.
- Risky given their risk management model - placing trust in management ownership & can work both ways + usual risks associated with market sensitive at market top & reg.
- Was preferred to IGG after IG sale - better value / mgt ownership / not fiddling reporting segments / ANZ vs US.
- Depending on results statement / whether I can get comfortable with the risks for a long term core holding - will be sold for a small profit/loss or - having written this down - I am not sure I will get comfortable.
Buy Sanderson Design Group
- Another ex holding that I should have probably bought a lot earlier. With the substantial pullback, it is cheap given the brand value and has pulled back a long way. The licensing income is very profitable & the extension of the license with Next in homewares is interesting.
- Rightly or wrongly, I think this company is similar to Portmerion and feel there will be a similar readacross.
- The pullback could be a function of cyclical business at peak cycle - personally I think with licensing the earnings might be a little more sustainable & plays into inequality trend.
- Assessment of how sustainable the earnings are & confirmation of positive/ahead of expectations trading to determine whether it is held or cut.
Portfolio Risers > 5%
CLX 9.13%, BATS 7.55%, NRR 7.53%, TATE 5.46%
- None of these had any news so far as I am aware, maybe some broker news.
- Clearly the market is seeing what I am seeing - Calnex aside, these are probably some of my cheapest holdings benefitting from the value rotaion?
- Calnex, maybe people were happy to see it mentioned in Buffetology Free Spirit, I certainly was! Doesn't feel all that undiscovered niche small cap.
- The latter three have had strong starts to the year - no clever explanations as to why now.
Portfolio Fallers > 5%
GAW -13.70%, SDI -7.86%, BVXP -5.65%
- BVXP - I will put down to a lack of liquidity / loss of momentum. I am happy to hold pending troponin developments & what I expect will be a recovery in Vitamin D.
- SDI - Seems market did not take kindly to the director sales immediately following a bullish update that did not say anything about expectations - neither did I.
- I am less interested in buying back the shares I sold
GAW down 13.7%
- I was initially surprised by the reaction but then I realised in the fullness of time that I was surprised by the reaction to the December trading update - I dare say my comments were quite prescient (I didn't sell on the rally) - guess people need to see the results - a triumph of hope over expectation.
- Personally, I thought the trading update was disappointing so far as the core business is concerned and the results confirmed as such. On a positive note, some of those issues are temporary and ought to abate & one of the problems is they are supply constrained and are addressing those.
- With all the royalty stuff, it is important they don't let the royalty tail wag the dog. Warhammer+ is interesting - if they can successfully move "Superfans" onto a separate / exclusive loyalty driven platform could be interesting but not sure the conditions for price discrimination exist (hence the issue with "Superfans" using GAW content). Even if the conditions existed, very few price discriminate successfully!
- They still don't adjust results for warehouse disruptions (unlike others), the royalty business has grown at some clip & 2021 H1 was a tough comp vs 2021 H2.
- What I find interesting is that notwithstanding CoVid disruptions, they have delivered the same earnings in H1 2022 that they did in full year 2020 and there market capitalisation is about the same.
- For what its worth, under a bad scenario - I can see earnings coming in around £2.60 per share - realistically, I see no reason why they should not come in close to the £3.80 - wonder if we will see a print in the 70s?
- Certainly feels like the company has lost some love - less talked about for sure (or a victim of the less quoted market truism) - Hard to talk after you have been punched in the mouth!
- For what its worth and why I am not adding - I noticed a distinct lack of confidence from the management team compared to previous reports. A print in the 70s would certainly make me reconsider.
Additional Updates & Results
A few more updates - nothing too exciting which is how I like it.
GSK
- Received an order from CDS for some CoVid pills - assume this is good, but they will make an appearance next week no doubt.
- Sell to Hold
BNZL
- Made an acquisition in December 2021 - New Jersey PPE Apparel/footwear - reading the announcement, it felt like they forgot about it.
- £50m in revenues vs 10bn+ understandable I suppose.
- Spent nigh on £1bn on acquisitions in the last two years - kind of boast that makes me nervous.
- HOLD
TSCO
- Sales still growing on LFL basis, highest market share in 4 years - 2.6% one year LFL & 8.2% two year - Booker recovery - strong in catering - brand perception improving (value & quality)
- View - doing what it is supposed to do - probably not the highest expected return after re-rating unless there is a bid - otherwise - will trundle along and pay a dividend
- HOLD to SELL - Not a particularly high conviction hold - generate income to produce elsewhere - Note: Original thesis - large capital return and value recovery has played out!
AAZ
- In line - from the narrative, definitely has a feel that a bigger business is being built here - quantitatively sound - very reasonable P:B vs other gold miners
- Who knows! - SOLD, Hold
And Finally
An important message from a great person - I am not a religious person but I find people who are find solace & consult from their faith.
Adieu
Comments
Post a Comment