Sunday 31 March 2019

March portfolio update

The G&W portfolio gained 0.07% in March, while the benchmark gained 0.73%.



August 3, 2017
March 31, 2019
Since July 1, 2018
Since Inception
Annualised
G&W Portfolio*
1.0000
1.3290
24.88%
32.90%
18.72%
Benchmark (SPAX2F0)
61,250.80
72,316.67
4.73%
18.07%
10.54%


*Returns are pre-tax, include franking credits, and assume dividends are reinvested. The SPAX2F0 is simply the total return of the S&P ASX200 Accumulation Index adjusted to include any franking credits received. N.B. I do not account for cash in the portfolio. The net result is that my returns are somewhat overstated (though I am nearly always close to fully invested).

March was a quiet month in terms of activity. I bought one new stock, Yowie Group (ASX:YOW), early in the month. At my purchase price of 7.3 cents, Yowie was a classic net-net with a decent margin of safety. At that price, the company's market cap was approximately $16m. The most recently half-yearly reported showed NCAV of approximately $26m. (This calculation was based on the prevailing USD/AUD exchange rate and included haircuts of 50 per cent for inventory and 25 per cent for receivables.) Shortly after my purchase, Keybridge Capital — one of Yowie's major shareholders — announced it intended to make an off-market takeover bid for all of the company's shares. The consideration is 9.2 cents: the first $9 million will be paid in cash, the rest in junk bonds. 

The bid is highly opportunistic, considering that Yowie had about 11.8 cents in net current assets as of December 31 (of which the majority was cash). It appears I am not alone in my view: Geoff Wilson, a vocal critic of KBC and its associates, bought 25 million Yowie's shares in March, bringing his voting stake to 13 per cent. In response, KBC's lawyers referred Wilson's purchases to the takeover panel, alleging they were in contravention of s606 of the Corporations Act. Due to my ignorance of the finer details of Australian corporate law, I have no idea as to the merits of KBC's allegations. I will be watching keenly from the sidelines (with popcorn in hand).

Despite the boost from Yowie, which closed at 8.7 cents on Friday, the portfolio remained flat over the month. Many of my positions drifted lower on no news. I currently hold 18 stocks in the portfolio. Ten of these (including Yowie) are net-nets, and six are illiquid stocks with strong balance sheets and high dividend yields. The remaining two are ASX-listed deep value plays: Capral (ASX:CAA) and Spicers (ASX:SRS), which I have discussed in earlier blogs. I intend to add another net-net to the portfolio in April.

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