Tuesday, November 30, 2004
No news is bad news
All my portfolio holdings would be considered 'smaller companies', organisations with a market value dwarved by the Goliaths that make up the FTSE-100 or Dow Jones Industrial Average.
Small companies are less researched, promoted or analysed. This can provide real opportunities for small potatoes investors like myself - shares can languish unloved, unrecognised and significantly undervalued.
Sniffing out these truffles is the first challenge. The required search and appraisal is a laborious process - just ask any oil explorer or over-exposed pop mogul. Patience and confidence in one's judgement is also vital while waiting for value to be reached. Finally, luck would come in handy and might manifest itself in a takeover bid or large institutional stake building.
Staying patient and remaining confident is easier if your investment is producing a stream of newsflow. This needn't be financial results themselves any information can be just what the market needs to provoke a reaction and re-assessment.
Dana Petroleum and Chaucer Holdings, my second and third largest stakes respectively, demonstrated this need for news recently, precipitating some very welcome price-perkiness.
Last Tuesday, Dana announced an impressive deal that would see a significant increase in North Sea production in exchange for a stake in a gas field still very much in the development phase:
Dana's North Sea gas production is expected to rise by approximately 17 million standard cubic feet per day, equivalent to around 2,800 barrels of oil per day. At the effective date of 1st July 2004, Dana estimates the acquisition will add 37 billion cubic feet of gas reserves to the Company, equivalent to 6.2 million barrels of oil. This is offset by the divestment of reserves in Block 23/16c equivalent to 1.4 million barrels of oil.
It was announced Dana would also hand Caledonia EU Limited (its partner in the trade) a cash makeweight. Any fears as to where this cash would come from were soon assuaged as Friday saw another announcement of divestment in development from Dana:
Dana will sell its minority 10% shareholding, with attaching rights and obligations, in the Russian company OAO Evikhon for a consideration of US$28 million.
The market was encouraged by this news. For those not following the company, the North Sea deal confirmed Dana's main source of earnings, production, is set to increase substantially from the numbers given at the last results announcement. This news should come as no surprise to keen followers of the share or this blog, I reported in October that Dana intended to hike up production to reach 27,000 boepd (barrels of oil-equivalent per day) by the end of 2005. The market response was encouragingly positive and the shares were quickly marked up.
The disposal of Dana's Evikhon stake demonstrates that the claims the company has been making since the AGM are being accomplished as Dana moves to focus on North Sea production and West African exploration, eschewing the peripheral distraction of Russian development work.
The declarations from Dana reinforce my confidence in this investment. Production is set to rise on the year and management is concentrating on extracting shareholder value from areas where the exertions can be more profitably applied.
Not one to miss out (for a change), Chaucer wowed market combatants with the announcement that a significant dividend hike was on the way for the next three years:
the Board has decided to adopt a distribution policy which aims to increase dividends by approximately 10% per annum from 2005 to 2008
Chaucer topped this off with more positive talk on trading and the assurance that hurricane losses on the year were expected to remain in the range previously stated and trading was progressing well:
Following the end of the hurricane season, the 2004 underwriting year remains on course to produce a third consecutive year of healthy underwriting profits
The news pushed Chaucer shares up to today's 48p to sell, Dana closed today at 410p to sell following disappointing drilling results other oil explorers prospecting elsewhere offshore Mauritania.
My remaining holdings, Ben Bailey and Mayborn, look set to give the market a significant signal in December. In that month last year, both companies announced forecast busting trading, sending shares rising sharply. A repeat performance this year would be just the early Christmas present my portfolio needs.
The Artful Dodger
(0) comments
Small companies are less researched, promoted or analysed. This can provide real opportunities for small potatoes investors like myself - shares can languish unloved, unrecognised and significantly undervalued.
Sniffing out these truffles is the first challenge. The required search and appraisal is a laborious process - just ask any oil explorer or over-exposed pop mogul. Patience and confidence in one's judgement is also vital while waiting for value to be reached. Finally, luck would come in handy and might manifest itself in a takeover bid or large institutional stake building.
Staying patient and remaining confident is easier if your investment is producing a stream of newsflow. This needn't be financial results themselves any information can be just what the market needs to provoke a reaction and re-assessment.
Dana Petroleum and Chaucer Holdings, my second and third largest stakes respectively, demonstrated this need for news recently, precipitating some very welcome price-perkiness.
Last Tuesday, Dana announced an impressive deal that would see a significant increase in North Sea production in exchange for a stake in a gas field still very much in the development phase:
Dana's North Sea gas production is expected to rise by approximately 17 million standard cubic feet per day, equivalent to around 2,800 barrels of oil per day. At the effective date of 1st July 2004, Dana estimates the acquisition will add 37 billion cubic feet of gas reserves to the Company, equivalent to 6.2 million barrels of oil. This is offset by the divestment of reserves in Block 23/16c equivalent to 1.4 million barrels of oil.
It was announced Dana would also hand Caledonia EU Limited (its partner in the trade) a cash makeweight. Any fears as to where this cash would come from were soon assuaged as Friday saw another announcement of divestment in development from Dana:
Dana will sell its minority 10% shareholding, with attaching rights and obligations, in the Russian company OAO Evikhon for a consideration of US$28 million.
The market was encouraged by this news. For those not following the company, the North Sea deal confirmed Dana's main source of earnings, production, is set to increase substantially from the numbers given at the last results announcement. This news should come as no surprise to keen followers of the share or this blog, I reported in October that Dana intended to hike up production to reach 27,000 boepd (barrels of oil-equivalent per day) by the end of 2005. The market response was encouragingly positive and the shares were quickly marked up.
The disposal of Dana's Evikhon stake demonstrates that the claims the company has been making since the AGM are being accomplished as Dana moves to focus on North Sea production and West African exploration, eschewing the peripheral distraction of Russian development work.
The declarations from Dana reinforce my confidence in this investment. Production is set to rise on the year and management is concentrating on extracting shareholder value from areas where the exertions can be more profitably applied.
Not one to miss out (for a change), Chaucer wowed market combatants with the announcement that a significant dividend hike was on the way for the next three years:
the Board has decided to adopt a distribution policy which aims to increase dividends by approximately 10% per annum from 2005 to 2008
Chaucer topped this off with more positive talk on trading and the assurance that hurricane losses on the year were expected to remain in the range previously stated and trading was progressing well:
Following the end of the hurricane season, the 2004 underwriting year remains on course to produce a third consecutive year of healthy underwriting profits
The news pushed Chaucer shares up to today's 48p to sell, Dana closed today at 410p to sell following disappointing drilling results other oil explorers prospecting elsewhere offshore Mauritania.
My remaining holdings, Ben Bailey and Mayborn, look set to give the market a significant signal in December. In that month last year, both companies announced forecast busting trading, sending shares rising sharply. A repeat performance this year would be just the early Christmas present my portfolio needs.
The Artful Dodger
Tuesday, November 16, 2004
Takeover talk starts Chaucer surge
Directors at Cox Insurance announced last week their company has received approaches from parties interested in buying out shareholders, proclaiming that discussions
may or may not lead to an offer for the company at a material premium to the recently traded share price
The stock market loves takeover situations and this announcement saw buyers come bursting out like hunting hounds, scrambling over the top of each other in pursuit of a profit. Prior to the announcement Cox shares bobbed along unnoticed at 61p to sell but responded quickly, coming up faster than a scuba diver in a pond of piranhas, closing today at 85p to sell.
The feeding frenzy focused attention on the insurers, where bargains have existed in abundance for some time. Chaucer Holdings, my stake in the sector, received some long overdue affection and today closed at 47p to sell, well above it's low of 40p, touched briefly in the storm of selling that followed the Atlantic hurricane season.
47p is a significant level for Chaucer, it is the same price the shares traded at the start of 2004. Despite my ill-disciplined second purchase of Chaucer shares at 54.75p in April, the advance is encouraging, the shares have held their ground in 2004 and further progress from this point will pile on the profit.
The Cox announcement underlines how cheap the insurers remain and spawns the suggestion takeovers could be on their way elsewhere too. Chaucer is still demonstrably cheap at 47p, its share price backed by tangible assets amounting to 41.9p per share and the flow of future earnings from a very profitable company.
The Cox kerfuffle raises a point hinted at in a recent blog - an investor should monitor the news and trading statements from companies in the same peer group as his investment and those that suffer comparable business risks.
That's no no mean feat. But not only will this level of investigation assist in the regular process of appraising and measuring the value of your holdings, it may also help identify outstanding investment opportunities that turn up like truffles.
Truffles however, have to be sniffed out. By the time the hunting hounds can smell a quick turn, much of the advance will have passed, probably taken by market makers before the stock exchange even opens.
Unfortunately for me, I have no cash to invest further in the bargains currently present in the insurance sector. That said, keen profit-seekers might like to turn their noses in the direction of SVB.
The Artful Dodger
(0) comments
may or may not lead to an offer for the company at a material premium to the recently traded share price
The stock market loves takeover situations and this announcement saw buyers come bursting out like hunting hounds, scrambling over the top of each other in pursuit of a profit. Prior to the announcement Cox shares bobbed along unnoticed at 61p to sell but responded quickly, coming up faster than a scuba diver in a pond of piranhas, closing today at 85p to sell.
The feeding frenzy focused attention on the insurers, where bargains have existed in abundance for some time. Chaucer Holdings, my stake in the sector, received some long overdue affection and today closed at 47p to sell, well above it's low of 40p, touched briefly in the storm of selling that followed the Atlantic hurricane season.
47p is a significant level for Chaucer, it is the same price the shares traded at the start of 2004. Despite my ill-disciplined second purchase of Chaucer shares at 54.75p in April, the advance is encouraging, the shares have held their ground in 2004 and further progress from this point will pile on the profit.
The Cox announcement underlines how cheap the insurers remain and spawns the suggestion takeovers could be on their way elsewhere too. Chaucer is still demonstrably cheap at 47p, its share price backed by tangible assets amounting to 41.9p per share and the flow of future earnings from a very profitable company.
The Cox kerfuffle raises a point hinted at in a recent blog - an investor should monitor the news and trading statements from companies in the same peer group as his investment and those that suffer comparable business risks.
That's no no mean feat. But not only will this level of investigation assist in the regular process of appraising and measuring the value of your holdings, it may also help identify outstanding investment opportunities that turn up like truffles.
Truffles however, have to be sniffed out. By the time the hunting hounds can smell a quick turn, much of the advance will have passed, probably taken by market makers before the stock exchange even opens.
Unfortunately for me, I have no cash to invest further in the bargains currently present in the insurance sector. That said, keen profit-seekers might like to turn their noses in the direction of SVB.
The Artful Dodger
Sunday, November 14, 2004
Hand me a rule of thumb
Investing isn't an exact science. It's probably not a science at all, which might explain why Einstein sought the secrets of the universe rather than Wall Street and Newton lost a load in the South Sea bubble.
Equity investment better resembles a particularly tricky art, it is possible to consistently profit but there is no formula or algorithm for guaranteed success.
Against the legions of possible investments we need a set of rules that encapsulate the logic of value and risk to enable rejection and selection. It would be a fruitless and expensive mission to seek out cast-iron rules for investment, more useful (and hopefully profitable) would be a collection of rules of thumb, which the Collins dictionary describes as:
broadly accurate guides or principles based on experience or practice rather than theory
It's my belief that rules of thumb are more useful to the investor than much investment theory such as the dividend discount model or modern portfolio theory. Rule of thumb occupies a dominant role in a broad spectrum of activities including tea making (one bag per cup and one for the pot), gardening (plant bulbs at one thumb's depth) and more sophisticated activities such as chess or advertising.
But when it comes to stocks and shares a few of my favourite guidelines are:
The Artful Dodger
(0) comments
Equity investment better resembles a particularly tricky art, it is possible to consistently profit but there is no formula or algorithm for guaranteed success.
Against the legions of possible investments we need a set of rules that encapsulate the logic of value and risk to enable rejection and selection. It would be a fruitless and expensive mission to seek out cast-iron rules for investment, more useful (and hopefully profitable) would be a collection of rules of thumb, which the Collins dictionary describes as:
broadly accurate guides or principles based on experience or practice rather than theory
It's my belief that rules of thumb are more useful to the investor than much investment theory such as the dividend discount model or modern portfolio theory. Rule of thumb occupies a dominant role in a broad spectrum of activities including tea making (one bag per cup and one for the pot), gardening (plant bulbs at one thumb's depth) and more sophisticated activities such as chess or advertising.
But when it comes to stocks and shares a few of my favourite guidelines are:
- Don't invest in loss-making companies
If they have never turned a profit previously, will they ever? - Avoid high debt situations
A company that can't control debt is especially vulnerable to interest rates and force majeure events, debt servicing constrains future growth. - Don't take on currency risk
Operating in some parts of the world magnifies risk. Volatile currency speculation is for clairvoyants. - Profit making companies should not trade at a discount to net asset value
You know it makes sense. - Don't diversify for diversification's sake
Only buy companies you are confident in. - High dividend yields won't last for long
Either the price will rise or the dividend will fall - keep an eye on profits and debt. - Eschew celebrity management
A good company needs no talking-up. - The house broker is biased
The company is one of their customers, you know. - A crazy share price can still double
It can be expensive trying to decry mania. - Steer clear of companies reliant on government suport
Policy can change faster than a Virgin Pendolino - see Railtrack
The Artful Dodger
Wednesday, November 03, 2004
Portfolio push-me-pull-you
Apart from a hedgehog in the cellar and white mice in the piano the most memorable image from Hugh Lofting's Dr Dolittle is the push-me-pull-you, a fictional creature with four legs, each pair pointing in a different direction and two heads doing likewise.
The push-me-pull-you was some kind of Siamese sheep and probably looked a little bit like this. The heads probably would have spent their time arguing which way to move, hearing the other's jokes ad nauseum and feeling constipated.
The recent high oil price and it's expected effect on my portfolio reminded me of this queer beast. A high oil price is a boon to Dana Petroleum but is the bane of a company like Mayborn. Basic inputs derived from oil are a key ingredient in the manufacture of Mayborn's plastic baby products. In theory, while Dana basks in this bonanza through higher output prices and Mayborn should suffer as input costs soar.
The Times recently reported the struggle some Chinese manufacturers were experiencing in the face of oil prices exceeding $50 a barrel.
Chinese manufacturers have cut production, shut down factory lines and sliced their margins to the bone in a desperate attempt to cope with $50 oil and severe energy shortages....
The surge in the oil price could have more drastic effects. It has wrecked the profit calculations of Chinese plastics, chemicals and textiles companies.
Mayborn's baby products operations consume a huge amount of plastics. Though the recent burgeoning oil price has buoyed profit expectations at Dana Petroleum, Mayborn has thus far escaped any scything sentiment and management have not reported any slip in margins.
Despite having a portfolio of only four shares I remain interested and enquiring of most listed plcs. Their vacillations and tribulations can yield vital information on industry conditions and any emerging trends. Coral Products, the UK based manufacturer of CD and DVD boxes recently warned at their AGM that costlier raw materials would hit profits this year. I'm left wondering if Mayborn has suffered similarly and what this means for my target price to sell. Mayborn last issued a trading statement in December 2003, explaining that market expectations would be exceeded. A similar announcement this year would see me raise my target for Mayborn but any news of falling profitability may lead me to sell. So, until further news arrives, Mayborn target remains 340p and I'll continue to Dolittle with the make-up of my portfolio.
The Artful Dodger
(0) comments
The push-me-pull-you was some kind of Siamese sheep and probably looked a little bit like this. The heads probably would have spent their time arguing which way to move, hearing the other's jokes ad nauseum and feeling constipated.
The recent high oil price and it's expected effect on my portfolio reminded me of this queer beast. A high oil price is a boon to Dana Petroleum but is the bane of a company like Mayborn. Basic inputs derived from oil are a key ingredient in the manufacture of Mayborn's plastic baby products. In theory, while Dana basks in this bonanza through higher output prices and Mayborn should suffer as input costs soar.
The Times recently reported the struggle some Chinese manufacturers were experiencing in the face of oil prices exceeding $50 a barrel.
Chinese manufacturers have cut production, shut down factory lines and sliced their margins to the bone in a desperate attempt to cope with $50 oil and severe energy shortages....
The surge in the oil price could have more drastic effects. It has wrecked the profit calculations of Chinese plastics, chemicals and textiles companies.
Mayborn's baby products operations consume a huge amount of plastics. Though the recent burgeoning oil price has buoyed profit expectations at Dana Petroleum, Mayborn has thus far escaped any scything sentiment and management have not reported any slip in margins.
Despite having a portfolio of only four shares I remain interested and enquiring of most listed plcs. Their vacillations and tribulations can yield vital information on industry conditions and any emerging trends. Coral Products, the UK based manufacturer of CD and DVD boxes recently warned at their AGM that costlier raw materials would hit profits this year. I'm left wondering if Mayborn has suffered similarly and what this means for my target price to sell. Mayborn last issued a trading statement in December 2003, explaining that market expectations would be exceeded. A similar announcement this year would see me raise my target for Mayborn but any news of falling profitability may lead me to sell. So, until further news arrives, Mayborn target remains 340p and I'll continue to Dolittle with the make-up of my portfolio.
The Artful Dodger
