Beximco Pharma reports results for the first half of 2016

Beximco Pharmaceuticals (LON:BXP) reported results for the first half of 2016 today. Because of a new rule of the Bangladesh Securities and Exchange Commission the company is in the process of changing the end of its fiscal year from December to June. Because of that the reported financials are a bit messy since this is the transition year that counts 18 months. The change is annoying, because including a 18 month period in the historical financial results hurts comparability while changing all the historical results to align with the new fiscal year end date is just too much work. For this year I have separated the results as if the change has not happened yet. But enough about this accounting issue, time to check the numbers:

Historical financials Beximco Pharma (H1 2016 update)

As you can see the results in the first half of 2016 were pretty good. Revenue grew with 13.12% thanks to a 5.3% increase in export sales and 13.6% more domestic sales and the period doesn’t yet include the start of the sales of Beximco Pharma’s first drug in the USA. Pretax profit is up 20.8%, but due to abnormal low taxes in the first half of 2015 net income is down a bit.

Overall good results, and with the stock up 8.4% in London at the time of writing this, the company is getting more expensive compared to my entry in 2014. At that time you could effectively buy the company at a 4.3x P/E-ratio and a 0.31x P/B-ratio in London. Now it’s trading at a 9.0x P/E-ratio and a 0.78 P/B-ratio. Still not expensive, and the discount compared to the price in Bangladesh remains consistently high. Because the results were released after the market closed in Bangladesh I cannot give you an exact discount. Using stale data from Bangladesh, it’s still 43%, but I expect that it will be back to 50% again tomorrow. While the company is getting less cheap when we look at simple valuation metrics I think this discount is the most meaningful, I don’t have any plans yet for exiting my position as long as it persists.


Author is long Beximco Pharmaceuticals

David Webb goes activist on Ming Fai

When Ming Fai announced that they had sold their investment property a few months back I wrote that, while that was a welcome development, I didn’t expect that a lot of capital would be returned to shareholders anytime soon. Unfortunate, since Ming Fai’s history of investing outside their core-business is less than perfect. Luckily I’m not the only one who has been thinking that and today, David Webb, a well-known activist investor in Hong Kong, published a letter to the company urging it to return the whole sale proceeds as a HK$0.352/share special dividend (the stock is currently trading at HK$1.11/share after jumping 5.7% today). This would still leave the company massively overcapitalized, and Webb, who owns almost 10% of the company, calls it the minimum that should be distributed. I totally agree with him, and hope management will be cooperative on this. A small quote from the letter:

As I explain below, hoarding cash is not an “improvement” in the cash position – our company is already overcapitalised, bloated with net cash far in excess of what is needed for the core business. Having too much equity drags down the rate of return on equity (profits divided by equity) and depresses the share price as it traps idle cash.

Ming Fai logoThe risk of burning the cash on unsuccessful new businesses beyond your area of expertise and excellence also depresses the share price, particularly given that Ming Fai has a proven track record of losing money in new non-core businesses. In over 25 years in the HK market, I have seen so many successful entrepreneurs list their business on the Stock Exchange and then make the mistake of assuming that they must be good at everything. Expertise in one field is not expertise in another. I hope you have learned from these mistakes, as that is what makes us all stronger.

If you return surplus capital to the market, then the market will repay that trust. Just look at some of my other investees and you will see how this works. For example, Alco Holdings Ltd (0328), of which I own more than 9%, sold its former premises in Zung Fu Building on 29-Dec-2015 and has since then distributed a total of $0.90 per share in dividends. The stock has returned 68.2% since 29-Dec-2015 (the day of the announcement) when it was trading at $2.30, and closed yesterday at $2.90.


Author is long Ming Fai

The crap you get when you buy a retail investment product

To take advantage of a small signup bonus at the Dutch insurance company “Nationale-Nederlanden” I applied for an account that would let them invest a bit of money for me. Based on a couple of questions they assign you to a model portfolio, and for doing this they charge a management fee of 1.0%. They assigned me to the “neutral 2” profile, that is pretty conservative with an allocation of 40% equities and 60% bonds. Since I don’t intent to keep this account strictly longer than necessary for the signup bonus, I don’t really care how they invest the money. Nevertheless, I was sort of surprised how crappy the portfolio is that you get:

NN portfolioAs you can see they put my money in a bunch of random mutual funds that add another layer of expenses. In the case of my profile these funds add 0.66% in expenses, so you pay 1.66% annually (more if you don’t meet certain minima). Of course, they managed to tuck in some of their own funds in this list and then it’s just a crappy mix of overlapping funds. There are for example two global bond funds (and there is a third one with inflation protection) and also three European corporate bond funds. And that’s just the tip of the iceberg… Investing like I do isn’t an option for everybody, but this is without a doubt a terrible deal for anyone. Just buy some cheap ETFs! It’s really sad how the big financial institutions are mainly in the business of selling the biggest crap they can get away with. I can’t really complain, because I’m just in it for a small bonus, but imagine someone who’s putting his life savings in this…


I have invested a whopping 50 euro’s in this crap, and already lost 3.89 euro…

Argo Group announces second buy-back programme

Today Argo Group announced that it would start a second share repurchase program. The first program, in which the company managed to buy back 28.1% of the outstanding share capital, was completed in July. In the second program the company is looking to spend £2.0 million, the same amount as in the previous program. With 48.4 million shares that remain outstanding and a share price that has been steadily moving upwards this year to 16.25p this would be enough money to retire another 12.3 million shares: 25% of the share capital and 50% of the float. We’ll have to see if the company will be successful in doing that. I was very surprised at the amount of shares they managed to buy in the previous program, so perhaps they can surprise me again. Since the stock is still trading at an almost 50% discount to NAV a successful repurchase program could increase intrinsic value materially.


Author is long Argo Group

Fortune Industries merger arbitrage

Fortune Industries (PINK: FDVF) is a small HR outsourcing company that went through a controversial LBO a couple of years ago where management obtained a 91% stake in the company with a small tradable float remaining. Last week the company announced that the 91% stake was sold to Oasis Outsourcing. Following this transaction the acquirer plans to buyout the minority shares using a “short-form” merger where minority shareholders are being paid $0.586/share. This appears to be a reasonable deal since the majority shareholder is getting the same price, minus certain transaction fees and potential indemnity liabilities.

Fortune Industries logoI think a transaction like this has a very low risk of failing (less than 1%). For the acquirer it makes sense to buyout minority shareholders and it doesn’t require a large amount of money compared to the first transaction. No regulatory or shareholder approval is required either to consummate the transaction. The only thing that is necessary is mailing shareholders an information statement 30 days in advance. I managed to pickup a bunch of shares at an average price of $0.5572 which means a spread of 5.2%. Give them a couple of weeks to mail the information statement, add the 30 day waiting period and add some time for the money to arrive and this deal should close around the end of November or the beginning of December. Annualized that corresponds to a 30% return if we model a close on the first of December.


Author is long FDVF