Tag Archives: 5965.JP

Reorganizing my portfolio: sold Fujimak, PVCS & Awilco

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I will admit it: I’m a lazy investor. Especially for my smaller positions I often forget about the stock after having done the initial valuation work. Sure, I follow the price/news/filings to see if anything significant is happening, but often it’s just business as usual. That doesn’t mean that fundamentals can’t deteriorate gradually, or that the price can climb slowly. And those small changes over time can add up to change the investment case. Because of that I started this month with a bit of a cleanup project. I’m reevaluating all my positions, and adding to them or selling them as I see appropriate. The first casualties of my cleanup project are Awilco Drilling (OSL:AWDR), Fujimak (TYO:5965) and PV Crystalox Solar (LON:PVCS).

Sell: PV Crystalox Solar

My reason for selling PV Crystalox Solar is simple. I primarily invested in this company because it is on a path towards liquidation and was trading at a near 50% discount to NAV, but with the share price increasing from 10p/share last year to 21p/share now this discount has almost completely disappeared. The stock was actually trading even higher around 24p/share just two days ago, but the preliminary results for 2016 were not well received by the market. The company managed to turn a lot of its inventory into cash (as expected), but the industry environment once again deteriorated sharply during the year. While the discount to NCAV is gone there might still be a decent amount of upside. The company is involved in an ICC arbitration case against a former customer that might result in a large favorable judgement. This is expected to happen in the third quarter of this year, but I have decided not to wait around for this, because I have no clue how to value this and it’s not a free option anymore. If I would encounter this stock for the first time today I would not buy it so I’m not keeping it either. I acquired my first shares of Crystalox in 2013 and they have returned 110% since.

Sell: Fujimak

The second position that I sold, coincidentally also today, is Fujimak. I bought this stock at the end of 2014, basically because it was super cheap when looking at simple metrics like P/E and net cash per share. The past weeks the stock suddenly started to move up, and I managed to exit with a total profit of 100.2% (after taking into account two small dividends). Despite the rise in price the stock is still very cheap. Valuing the cash balance at 50% and slapping a 8x earnings multiple on the company and it’s still trading at a discount of ~30% to this conservative estimate of value. Not a bad deal, but in Japan you can do better than this.

Sell: Awilco Drilling

A position that has been on my ignore list for a long time is Awilco Drilling. I bought the stock early in 2013 when it had two drilling rigs under long term contracts that, according to my calculations, would generate roughly enough cashflow and dividends to pay back my initial outlay. With oil prices high at the time it was not an unreasonable assumption to think that the company would most likely be able to rent out the drilling rigs again when the two contracts would end. Of cours, we now know that that didn’t happen and as a result one rig is currently cold stacked while the other rig will reach the end of its contract in the first half of 2018.

I bought the stock at 90NOK/share, received 75NOK/share in dividends and sold the stock for 31.8NOK for a total profit of 18.9%. That’s in absolute sense not a whole lot (especially considering the holding period), but at the same time I’m extremely pleased with this result. Despite encountering one of the most unfavorable scenarios possible I managed to generate a positive return. At the same time it also validates the correctness of my initial thesis since I did indeed managed to get most of my capital back. Right now the share price of Awilco Drilling is absolutely not covered by the future cash flows from the contract that is left. I think they might generate roughly 15.5NOK/share in dividends, and the remaining value is a bet that either the rigs can be sold or that the situation changes in the coming years and they can find some work again. With my original thesis gone I don’t see a reason to stay invested.

Buy: Beximco Pharma

Besides selling stock I have also added significantly to my position in Beximco Pharma. Just two months ago I wrote that I sold a large part of my Beximco Pharma stock since the discount between the GDRs in London and the ordinary shares in Dhaka had come down from 60% to just 25%. Since then the stock price in London has slipped again while the price in Dhaka continued its upward trajectory, and as a result the discount is now back to exactly 50%. This doesn’t make any sense, but I’ll happily continue to buy low and sell high as long as the market is willing to provide those opportunities :).

Disclosure

Author is long Beximco, no position in Awilco rilling, Fujimak or PC Crystalox Solar anymore

Bought two stocks in Japan

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That stocks are cheap in Japan is no secret. Part of the reason is probably that it’s hard to get exited about a stock market that has been going down for decades. Even though 2013 was a pretty decent year for the Nikkei 225 the index is currently trading at the same level as in 1986. But the bigger issue is that corporate governance is a major problem in Japan, and it’s also the reason why I have never been too enthusiastic about jumping on the Japan bandwagon. As someone mentioned on Twitter this week:


This is certainly true to some extent in Japan. It’s not a coincidence that a majority of Japanese companies have a very large cash balance: it’s the result of a country wide culture of poor capital allocation. So buying cash at a discount with a small operating business attached never sounded very attractive to me. You should expect that the company continues to sit on the cash balance for years or even decades while earning shareholders almost nothing in the mean time. I expect that eventually corporate capital allocation will improve in Japan, but that could be an event that happens outside my investment horizon.

Luckily not every company in Japan is a stagnant business with poor returns on equity, and some are just too cheap to ignore. I will let the table below do the talking:

Fujimak and Nansin key stats

As is visible both companies managed to generate good returns on equity the past 5 years despite the drag of a medium/large cash balance. I expect that these companies will be able to grow intrinsic value meaningfully in the years to come, and hopefully that will be reflected in the stock price and/or higher dividends. Fujimak has a good history of growing it’s dividend while it has also been investing a lot of money in capex the past years. Normally I would be a bit worried when I see a lot capex, but in the case of a Japanese company I actually think it’s a pretty good sign: almost anything is better than idle cash…

Since both companies are located in Japan and I don’t speak a word Japanese my analysis of both companies is superficial at best and purely based on the financial statements of the past 5 years. It is totally possible I’m missing something important. That’s why I initiated two small positions, and I might add a couple of other names in the future to create a small basket of similar priced Japanese stocks to diversify my risk.

More reading:

Disclosure

Author is long Fujimak and Nansin