Tag Archives: AWDR.OL

Reorganizing my portfolio: sold Fujimak, PVCS & Awilco

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 :).


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

2014 performance review

With 2014 behind us, it is of course time for the obligatory year-end portfolio performance review. While one year is a too short time frame (for most strategies) to determine with any amount of certainty if you are able to beat the market it is still better than nothing. Trying to track if you are able to add alpha is hugely important since it determines what the appropriate investment strategy is. Given the low base rate of people being able to add alpha you should be skeptical that someone, who is outperforming, is skilled instead lucky, and that includes yourself. I’m slowly but surely building a decent track record, but with the benchmark up in the double digits for the third year in a row it is relatively easy to look like a genius:

Year Return* Benchmark** Difference
2012 18.53% 14.34% 4.19%
2013 53.04% 17.49% 35.55%
2014 27.71% 18.61% 9.10%
Cumulative 131.66% 59.34% 72.33%
CAGR 32.32% 16.80% 15.52%

* Return in euro’s after transaction costs, dividend withholding taxes and other expenses
** Benchmark is the MSCI ACWI (All Country World Index) net total return index in euro’s

While my results for 2014 are absolutely more that satisfactory, I did in fact, underperform global equities in the second half of the year. I returned just 3.8% in the second half of 2014 while the benchmark returned a whopping 11.0%. The fact that I managed to generate a positive return in the second half of the year is a small miracle in itself, and mostly the result of favorable currency movements. The strong benchmark performance has the same underlying reason since the MSCI ACWI is up just 4.16% for the year when measured in US dollars.

Conduril was (and is) my biggest position with an almost 30% portfolio allocation at the start of July. Unfortunately, it gave away a large part of the gain that it made earlier this year when it dropped 28% from €85/share to €61/share. That’s a pretty strong tailwind to overcome! At the same time, Awilco dropped from more than $25/share to less than $11/share. Other losers in the second half included Conrad, Argo, Deswell Industries, Clear Leisure and Burelle. As a result, my performance attribution graph looks totally different compared to six months ago:

Performance attribution 2014

When looking at this graph you have to realize that it isn’t adjusted for position size. While I made the largest amount of money on Conduril the stock actually underperformed my portfolio slightly. What I find encouraging is that I made money on a lot of different ideas. This contrasts with the first half of 2014 when almost all my gains could be attributed to Conduril.

The more independent bets you make the easier it becomes to discriminate between luck and skill. Unfortunately, stocks are never totally uncorrelated, and I think you can make a decent case that my portfolio is mostly long low liquidity and short high liquidity. So perhaps I’m at risk of large losses in certain market conditions and are the above average returns, thus far, just a fair compensation for this risk. I don’t think that that is true, but given the randomness and uncertainty inherent in investing it is not an easy statement to disprove (if possible at all).

I think that my portfolio is currently well positioned for adverse market scenario’s given the reasonable diversification across countries, industries, and companies. My portfolio is at the moment pretty conservative (too conservative) with a long exposure of just 85.7% and a short exposure of 2.7% for a net long exposure of 83.0%. This is however mostly the result of my recent Conduril sale, and I intend to move closer to being fully invested when possible. Unlike many other value investors, I don’t like holding cash given the associated opportunity cost.

Portfolio composition start 2015

While I probably should add some reflection in this post on what my biggest mistakes were in 2014 I’m not going to do that – it’s getting long enough as it is – but I’m going to discuss why I think my investment in Awilco wasn’t a mistake nor not selling it when it was trading above $25/share. I have seen various people mention this as one of their biggest mistakes of 2014, but I think that is mostly results oriented thinking. Oil suddenly dropping from $100/barrel to almost $50/barrel was a low probability event that I don’t think anyone could have forecast.

Every single stock can be hit by an unfavorable event, and some are more at risk than others. Dropping oil prices were always a possibility, just like rising oil prices. Who knows what could have happened in an alternative world that would have resulted in oil shortages? What would have been a mistake if I would have sized my position in Awilco such that nothing could go wrong. I also don’t think that not selling at $25/share was a mistake. I thought it was roughly fairly valued at that level, and I actually sold some shares but holding a fairly valued stock is in my opinion not a mistake. You will incur transaction costs when you sell, you might be liable for taxes and you get cash in return that earns nothing if you don’t have a good idea on standby. Not selling a clearly overvalued stock: that’s what I call a mistake.


Long everything in the portfolio overview

Awilco Drilling: back to square one?

I bought Awilco Drilling in the beginning of 2013 at 90 NOK/share, and after peaking at 162 NOK/share almost three months ago the shares are back to where they started. I was fortunate enough to sell a part of my position near the top, and the big question is of course: is it time to start buying again? Unfortunately the answer is not an easy yes since intrinsic value has been dropping as well. Oil prices are lower, and as a result day rates are also declining.

A glimpse of what is happening with day rates was offered by Transocean last Wednesday when they announced that the Transocean Leader was awarded a four year contract with a day rate of $335,000. The rig was previously operating for $400,000/day for Statoil in Norway on a contract that started in 2012. Since day rates have increased since early 2012 I’m afraid that Awilco’s day rates will drop more than the 16% implied by the new Transocean contract. Awilco is operating under contracts that were made in 2013.

To analyze the impact of various possible future day rates I have created a small DCF model. The two items that have the biggest impact on the calculated intrinsic value are future day rates and the discount rate. With a day rate of $275,000 and a 12.5% discount rate we get today’s share price ($13.80) as fair value:

Awilco Drilling DCF model

A $275,000 day rate is 30% below the current day rate. I think this is a bit pessimistic for Awilco since day rates in the UK remained at ~$250,000 even when oil dropped to $40/barrel in early 2009. With day rates at $300,000 the model spits out a value of $16/share while at a $325,000 (representing a 16% discount) fair value per share would be $18. I think using a $300,000 day rate is a reasonable base case. Unfortunately this means that Awilco is probably just slightly undervalued at ~$14/share. So even though the shares have dropped significantly the past months I wont be in a hurry to add to my position.


Author is long AWDR.OL

Earnings season updates (AWDR.OL, CNRD, CLP.L, PVCS.L)

Awilco Drilling (AWDR.OL)

Awilco Drilling reported excellent results for the second quarter of 2014 with a revenue of $66.3 million and a revenue efficiency of 99.7%. There were however a bunch of one-time items that impacted the financials statements. Interest expense was artificially high because of costs related to the debt refinancing, the tax rate almost tripled and operating cash flow was relative low due to a big jump in receivables. The tax rate for this quarter was almost 22%, a lot higher than the roughly 8% the company paid in the past. Those low rates are unfortunately a thing of the past due to a new law. Awilco is expecting that the normalized tax rate going forward will be around 15%.

Because the share price of Awilco has been going up steadily since I bought it while the company has paid out all FCF as dividends I think the stock is now not significantly undervalued anymore. It’s not (yet?) expensive, but at an estimated 20% discount to fair value I will probably take some money off the table soon.

Conrad Industries (CNRD)

Conrad is another pick that has advanced significantly since I bought it and is now also trading a lot closer to intrinsic value than in the past. But it not expensive with 25% of its market cap in cash and a 8x PE-ratio. Given the large cash balance I expect another special dividend at the end of the year, and given how management has been able to grow the business I’m happy to continue to hold this. Might be a good stock to hold for the long-term.

Historical financials Conrad 1H 2014

Clear Leisure (CLP.L)

I described Clear Leisure as a train wreck in my first post on the company, so perhaps I should have known better, but unfortunately the bad news is not yet behind us. The stock was suspended from trading almost two months ago because the company was unable to fill its annual accounts in time. A bit of hope is provided in the trading update that was released today in which the company announces its intention to sell the Mediapolis land and building rights separately. Call me skeptical…

Crystalox Solar (PVCS.L)

Better news came from Crystalox Solar that announced a €8.7 million settlement with one of its long term contract customers that had entered insolvency proceedings. We will have to wait a few more days for the interim financial report. I expect that they will have maintained their solid balance sheet, but I don’t expect better than break-even results.


Author is long all stocks mentioned in this post

More updates (AWDR.OL, CNRD, PVCS.L, SHFK)

While I was on vacation for just three weeks a ton of companies thought that would be the perfect time to release news. So some quick thoughts on the latest portfolio developments:

Awilco Drilling (AWDR.OL)

Awilco refinanced its debt last month. The company had ~$100 million of debt outstanding at a 9% interest rate that matured in 2015 and they replaced this with $125 million of debt with a 7% interest rate that will mature in 2019. Because Awilco decided to increase its debt load the lower interest rate will not lead to a meaningful reduction in interest payments which is unfortunate. Although $25 million isn’t a whole lot of money (for Awilco) I don’t see why they would want to borrow more. It’s not very cheap at a 7% rate, they don’t need it because they pay this much in quarterly dividends and since the effective tax rate of Awilco is low it has little value as a tax shield.

Conrad Industries (CNRD)

Conrad Industries reported their 2013 results last month, and business continues to be good. Earnings increased from $20.8 million in 2012 to $28.6 million in 2013 and the backlog is up 27% compared to last year. With the stock now trading at $42/share the company is certainly not as cheap anymore as it once was, but with a capable and shareholder friendly management team at the helm this is a business I don’t mind owning close at fair value (it would probably be more correct to incorporate a premium for management quality in the fair value estimate).

PV Crystalox Solar (PVCS.L)

Crystalox also reported their 2013 results last month, and their news was positive as well. The solar panel business is still struggling, but the company managed to increase revenues by 54% and they recorded a small profit of €3.7 million. After returning €36.3 million to shareholders at the end of 2013 they still have a net cash position of €39.2 million while the current market cap is just €37 million. Given the positive operating cash flow and the strong balance sheet I think Crystalox is still cheap and in a good position to wait for better times. So despite the fact that the shares are up significantly this year I’m keeping my position.

Schuff International (SHFK)

The last company in my portfolio that reported 2013 results was Schuff International. I never wrote about the stock on this blog because it has been covered extensively on other value investment blogs, and because I never managed to buy a full position (unfortunately). A good introduction to the stock can be found on OTC Adventures (part 1, part 2).

Just like my other holdings Schuff also reported excellent results. Revenues stayed more or less flat, but margins increased significantly: almost doubling operating income. What’s very encouraging is that the backlog has grown a whopping 130%: next year should be good! What’s also nice is that they managed to eliminate most of the debt that they incurred when they bought back almost 60% of the outstanding shares at the end of 2011. Looking back this must have been one of the best share repurchases ever.

Schuff recently also launched a shiny new website that includes a pretty cool infographic that showcases how much of the Las Vegas strip has been built by them:

Schuff projects in Las Vegas


Author is long all names mentioned