The G&W portfolio gained 0.94% in April, while the benchmark gained 2.37%.
*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).
I spent much time this month trying to purchase a new position for the portfolio. I identified two statistically cheap stocks listed in Singapore, but was unable to get a full position in either. (Thankfully, one of my orders has nearly been filled since month end.) I received a substantial fully franked dividend from my largest holding in April, which boosted the portfolio's performance. (The stock did not trade in April, so there was no ex-dividend effect.) Otherwise, the portfolio remained largely flat.
There have also been some developments in Yowie (ASX:YOW), which I discussed in last month's report. In late April, the takeover panel found Wilson Asset Management's purchase of ~27 million Yowie shares in March and Keybridge's purchases of ~1 million shares in April were unacceptable. Consequently, approximately 28 million shares — 12.92% of the company — have been vested with ASIC for sale. On April 30, Yowie also released its 4C for the quarter ending March 31. The company burned ~US$1.8m cash during the quarter, which was in line with my expectations. More concerning was the drop in receipts from customers: $2.4m for the quarter, compared to $4.2m and $4.4m for the first two quarters. Additionally, because the company's cash balance dropped below US$17 million, it triggered one of the defeating conditions for Keybridge's takeover offer. On Thursday, Keybridge announced it would not proceed with its offer, and the stock dropped sharply.
It is clear that there is still some story to play out with Yowie. However, these developments reinforced that — due to the forces at play, and antagonism between Keybridge and Yowie's board — there is a substantial risk that smaller holders like myself could be left holding the bag. Nevertheless, there appears to be value in Yowie's assets, at least at the current price. With 217,748,987 shares outstanding, the company's market cap is $15.46m at the current price of 7.1c. At March 30, the company had a cash balance of US$16.982m — A$24.2m at current exchange rates. The March 4C doesn't give us an up-to-date picture of the company's liabilities, so we have to make an educated guess. At December 30, Yowie's had total liabilities of US$2.90m, largely comprising trade payables. If we err on the side of caution and assume that Yowie's liabilities have increased to $US4m, we would be left with approximately US$12m (A$17.1m) in net cash — equal to 7.85c per share. If we add in value for Yowie's inventory (discounted by 50%) and receivables (discounted by 25%) at December 30, we are left with net current assets of 10.14c per share.
In terms of risks, there is the possibility the directors run the company into the ground. (Indeed, it seems they would rather do that then sell the company to KBC.) There is a risk that cash burn increases substantially. There is the risk that KBC or another party makes an even more opportunistic takeover offer in future that would lead to me losing capital permanently. Yowie is also involved in a legal matter, which is discussed is the December half yearly and elsewhere. Considering all of this, it may turn out that Yowie is priced fairly. While Yowie deserves to be discounted, my sense — which may well turn out to be unfounded — is that the stock is too cheap. I do not have plan to add to my position (currently 4.77% of the portfolio), but I will continue to hold the stock while it remains at depressed prices.
August 3, 2017
|
April 30, 2019
|
Since July 1, 2018
|
Since Inception
|
Annualised
| |
G&W Portfolio*
|
1.0000
|
1.3415
|
26.06%
|
34.15%
|
18.40%
|
Benchmark (SPAX2F0)
|
61,250.80
|
74,029.72
|
7.21%
|
20.86%
|
11.51%
|
*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).
I spent much time this month trying to purchase a new position for the portfolio. I identified two statistically cheap stocks listed in Singapore, but was unable to get a full position in either. (Thankfully, one of my orders has nearly been filled since month end.) I received a substantial fully franked dividend from my largest holding in April, which boosted the portfolio's performance. (The stock did not trade in April, so there was no ex-dividend effect.) Otherwise, the portfolio remained largely flat.
There have also been some developments in Yowie (ASX:YOW), which I discussed in last month's report. In late April, the takeover panel found Wilson Asset Management's purchase of ~27 million Yowie shares in March and Keybridge's purchases of ~1 million shares in April were unacceptable. Consequently, approximately 28 million shares — 12.92% of the company — have been vested with ASIC for sale. On April 30, Yowie also released its 4C for the quarter ending March 31. The company burned ~US$1.8m cash during the quarter, which was in line with my expectations. More concerning was the drop in receipts from customers: $2.4m for the quarter, compared to $4.2m and $4.4m for the first two quarters. Additionally, because the company's cash balance dropped below US$17 million, it triggered one of the defeating conditions for Keybridge's takeover offer. On Thursday, Keybridge announced it would not proceed with its offer, and the stock dropped sharply.
It is clear that there is still some story to play out with Yowie. However, these developments reinforced that — due to the forces at play, and antagonism between Keybridge and Yowie's board — there is a substantial risk that smaller holders like myself could be left holding the bag. Nevertheless, there appears to be value in Yowie's assets, at least at the current price. With 217,748,987 shares outstanding, the company's market cap is $15.46m at the current price of 7.1c. At March 30, the company had a cash balance of US$16.982m — A$24.2m at current exchange rates. The March 4C doesn't give us an up-to-date picture of the company's liabilities, so we have to make an educated guess. At December 30, Yowie's had total liabilities of US$2.90m, largely comprising trade payables. If we err on the side of caution and assume that Yowie's liabilities have increased to $US4m, we would be left with approximately US$12m (A$17.1m) in net cash — equal to 7.85c per share. If we add in value for Yowie's inventory (discounted by 50%) and receivables (discounted by 25%) at December 30, we are left with net current assets of 10.14c per share.
In terms of risks, there is the possibility the directors run the company into the ground. (Indeed, it seems they would rather do that then sell the company to KBC.) There is a risk that cash burn increases substantially. There is the risk that KBC or another party makes an even more opportunistic takeover offer in future that would lead to me losing capital permanently. Yowie is also involved in a legal matter, which is discussed is the December half yearly and elsewhere. Considering all of this, it may turn out that Yowie is priced fairly. While Yowie deserves to be discounted, my sense — which may well turn out to be unfounded — is that the stock is too cheap. I do not have plan to add to my position (currently 4.77% of the portfolio), but I will continue to hold the stock while it remains at depressed prices.
