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91
General Discussion / Re: Decision Journal
« Last post by galumay on October 28, 2018, 09:40:02 AM »
I am starting to come to the view that one of the biggest errors in my investing history has been failing to sell my positions in businesses that have failed to execute in the way I had hoped. My strength has probably been not selling the positions in businesses that have executed as well or better than I hoped.

As part of this thought process I am looking at my personal portfolio and considering how to adjust for this error. In alphabetical order,

AHZ - Should have sold when I realised management interests were not aligned with the business or shareholders. I actually specifically identified this point in time and failed to act. I cant sell now as they are suspended.

CDA - best performer in the portfolio, a multibagger. Should have put more into the position as management executed the turnaround, I did average down a little, but should also have averaged up.

ICU - a stupid exercise in trying to short term trade, something I since came to accept was outside my circle of competence. SELL

KPT - although price has dropped, management executing as planned and remains a long term high conviction postition. HOLD

LPE - ditto, next 4C very important for conviction on postion HOLD

MOC - I have held because of the yield and more recently because of the belief that the financial services sector may be a growth area for the business. SELL

NWH - My big mistake was not averaging down when NWH went to 20c, as I did in the SMSF. Still a strong HOLD

SND - Should have sold when the business failed to execute, still possible its able to turn around and need to look at H1 report when it comes out.

VRS - bought too early, position size is so small its probably not even worth exiting.
93
General Discussion / Re: Decision Journal
« Last post by galumay on October 05, 2018, 06:53:59 PM »
Guys of Gove.

Cons- cant find someone to manage business, then 1 of us have to run. (at any time)

       - Opportunity cost, if we do this we cant do much else.

       - Create debt

       - catostrophic risk - one of us dies, town closes, cyclone.

       - more work/involvement/stress

       - Negative impact on family
   
       - Working with staff

       -

Pros -   Potential passive income stream

       -   High return on invested capital

      -   Possibility of active engagement in both the business & community.
 
      -  Providing employment opportunity

      -   Leverages the line of credit in our IO loan while its still IO.


Alternatives - Do nothing
     
      -  Buy more property
 
       - buy commercial property

      - potential investment with Putty

      - do nothing now, something later

      - Buy Phil's business

     -  Start a similar business from scratch after they leave.

     - Invest similar amount in share market.


OTHER THINGS,

   - Follow up lease

   - Talk to Jess

   - Decide on a structure

94
General Discussion / Re: Things People Say...
« Last post by galumay on September 16, 2018, 09:32:44 AM »
Jeff Besoz, "look for missionary not mercenary businesses/business owners"
95
General Discussion / Re: Decision Journal
« Last post by galumay on September 13, 2018, 09:18:19 AM »
We have 3 months of power cuts coming up while the power network is being upgraded, decided to get a proper switch and outlet added so we can run a genset to keep the house powered up. Can buy a cheap genset for $1100 but will probably get the more expensive yamaha at $1700 because of better resale value.
96
Shares / JYC
« Last post by galumay on September 11, 2018, 07:15:41 PM »
Joyce Corporation has come into my area of interest recently, thinking about taking a position. My initial thoughts are in the decision journal,

H1 19, a solid H1, growth a litttle slower than i expected, but the core business is strong and resiliant.

click here to view older commentary
97
General Discussion / Re: Decision Journal
« Last post by galumay on September 07, 2018, 02:58:24 PM »
Looking closely at another business, Joyce Corporation Ltd. A business that has been around for 132 years and readers my age will remember they sold foam mattresses etc in the past. It is now basically an investment company with a majority holding in Lloyds Auctions, owning Bedshed and Kitchen Connection as well. The business is tightly held with the top 20 shareholders owning 70% of issued shares and the CEO holding 40% on his own.

The business is profitable and pays a healthy dividend yielding about 8% and growing, its a cash cow generating relatively large free cash flow. There is some debt but its quite manageable. The business owns property that is valued conservatively on the books for about $9m. The business has about $6m cash on hand. All on a capitalisation of only $43m.

By my calculations the range of IV is somewhere around $4 and it currently trades for around $1.60.

Basically I think its just an unloved business, not understood and slipping under the radar.

Thinking about what could go wrong, the car auction business is susceptible to competition, barriers to entry are low as are switching costs. Revenues would presumably fall in a recession, but its unlikely such a conservatively geared company would suffer too much from economic head winds. A housing crash might see the Kitchen renovation business become less profitable, although its entirely possible the effect would be positive as people chose to renovate instead of selling. The bed business is not threatened by online growth, people want to 'road test' a bed before buying, but again in a severe recession it could suffer. Basically all the business units are vulnerable to negative consumer sentiment given the products they sell, so share price and dividends could suffer in a protracted downturn, but the business should be resilient enough to come out the other side of the cycle.

I cant see any catostrophic risk with such a conservative business, people are going to still buy cars at auction, sleep in beds ad cook breakfast in a kitchen!

Buying now makes sense only because the discount to value is so great, and given the trajectory of revenue, earnings, profit, cashflow and dividends, its unlikely it will continue to trade at such a discount indefinitely.

Considering selling a small parcel of NWH to fund an entry position in JYC, it is now my 2nd biggest position and selling this parcel would represent returning the original invested capital and leave the rest as pure profit.

A mixture of quick & slow thinking! I have put in an order to sell down NWH, buy some JCY but also add to my holding in KME after it fell 8% yesterday when the founder owner notified he was selling down his holding by 15% over the next 4 years. IMO that is an over reaction because its actually positive that it increases liquidity a little in a very tightly held business - he is selling 500k shares over 4 years and that only reduces his holding by 15%! bought more at 65c which is more than 5% below recent prices.
UPDATE - more fast decisions, bought more today at 62c nearly 10% below recent prices!! I won't throw any more at it, although I think it may drop some more in the short term.
98
Shares / Re: Companies I didnt buy
« Last post by galumay on August 17, 2018, 08:34:34 PM »
CUP & LBL two I have looked long and hard at. 70c & 17.5c repectively.

Bought into LBL and increased my position a couple of times.
99
Shares / LBL
« Last post by galumay on August 11, 2018, 12:29:23 PM »
Considering opening a position in LBL - Laser Bond Limited.

LBL is a very small business based in SA who specialise in hardened surfaces for high wear applications. They service agriculture, oil & gas, mining, drilling, boring, - basically any 'tool' or machinery part subject to high wear from errosion, corrosion or impact. They have a strong R&D program tied in with a university as well as larger clients. Its a profitable little business, very tightly held registry with about 70% held by founder family & director interests so its quite illiquid.

The growth potential with the business is their growing international sales and more especially a new technology services division. In this sector of the business they sell a Laser Bond facility to a foreign customer, they build, install & train then there is a 5 year service agreement for revnue based recurring income. This has potential to be a significant source of income for the business if they can successfully build on the first few clients in the division.

Management seem very focussed and 'no nonsense", typical of founder/owners IMO, the reports and announcements are refreshingly frank and with few of the bullshit bingo words and motherhood statements common in ARs.

Based on my calculation of range of IV i have them at around 30c fair value, based on the 2017 Annual report, they currently trade at 17c - after a run up from 13-14c caused by the announcement of another Technology licencing contract and a positive update on revenue for the full FY.

It should be noted that profit was significantly impacted by the first Tech services contract - it added about $1.4m to revenue and this will not appear in the 17/18 FY, but as the update of revenue for the FY noted, growth in revenue in the other divisions have more than offset this. Also the announcement of the new contract means that revenue will again be increased by this division in 2018/19 FY

The business has little debt, 25 year history of profitable operation other than a blip in 2013 when they made a loss as a result of closing their unsuccessful Qld operation, and a niche market with strong IP.

The downside is that its a very small business, with illiquid registry and the value I see may remain locked up and not apparent in the price for a long time. The risk appears assymetric to me, its quite possible that continued expansion into the international business and growth of the licensing model would see increased profits, dividends and eventually share price. On the other hand if they dont get any real traction with the international push, and the licensing model flops, then the business should be valued on its 2017 numbers anyway - which still makes the current price look cheap.

Its an easy to understand business, it has some competitive advantage with IP and niche marketing. Margins should be fairly easy to maintain as incremental price changes in the product will be easily absorbed by customers and outweighed by the overall cost benefit of the proprietry process of protection for wear surfaces.

Competitors in the industry are Hardchrome Engineering, Laser Cladding Services Australia, and Dura Metal,part of Axalta group a large USA based international coatings specialist. The first couple are small private businesses, I suspect they would only service within their own state. Dura Metal is part of a much bigger international business, but I dont really see them as a direct competitor, they are more selling complete laser cladding machines for manufacturers who want to clad in house. (although that is a potential market for LBL as well>0

Now is the time to take a position, because LBL will release results for this year in August and I expect there will be a further positive reaction.

LBL, Laser Bond Limited, bought an initial position at 16.5c on the 6/9/18. My thoughts on the business are in the decision journal, I added more at 16.5c buying on a dip.

Increased my position size with another parcel at 30c which brought my average price to 20c.

H1 19 results very strong as expected, with significant revenue stream due from tech division next half.

click here to view
100
General Discussion / Re: Decision Journal
« Last post by galumay on August 11, 2018, 12:03:00 PM »
Considering opening a position in LBL - Laser Bond Limited.

LBL is a very small business based in SA who specialise in hardened surfaces for high wear applications. They service agriculture, oil & gas, mining, drilling, boring, - basically any 'tool' or machinery part subject to high wear from errosion, corrosion or impact. They have a strong R&D program tied in with a university as well as larger clients. Its a profitable little business, very tightly held registry with about 70% held by founder family & director interests so its quite illiquid.

The growth potential with the business is their growing international sales and more especially a new technology services division. In this sector of the business they sell a Laser Bond facility to a foreign customer, they build, install & train then there is a 5 year service agreement for revnue based recurring income. This has potential to be a significant source of income for the business if they can successfully build on the first few clients in the division.

Management seem very focussed and 'no nonsense", typical of founder/owners IMO, the reports and announcements are refreshingly frank and with few of the bullshit bingo words and motherhood statements common in ARs.

Based on my calculation of range of IV i have them at around 30c fair value, based on the 2017 Annual report, they currently trade at 17c - after a run up from 13-14c caused by the announcement of another Technology licencing contract and a positive update on revenue for the full FY.

It should be noted that profit was significantly impacted by the first Tech services contract - it added about $1.4m to revenue and this will not appear in the 17/18 FY, but as the update of revenue for the FY noted, growth in revenue in the other divisions have more than offset this. Also the announcement of the new contract means that revenue will again be increased by this division in 2018/19 FY

The business has little debt, 25 year history of profitable operation other than a blip in 2013 when they made a loss as a result of closing their unsuccessful Qld operation, and a niche market with strong IP.

The downside is that its a very small business, with illiquid registry and the value I see may remain locked up and not apparent in the price for a long time. The risk appears assymetric to me, its quite possible that continued expansion into the international business and growth of the licensing model would see increased profits, dividends and eventually share price. On the other hand if they dont get any real traction with the international push, and the licensing model flops, then the business should be valued on its 2017 numbers anyway - which still makes the current price look cheap.

In terms of catostrophic risk, the consevative nature of the business, low debt and strength of underlying business even without growth, makes it hard to foresee an event that would cause the business to fail.

Its an easy to understand business, it has some competitive advantage with IP and niche marketing. Margins should be fairly easy to maintain as incremental price changes in the product will be easily absorbed by customers and outweighed by the overall cost benefit of the proprietry process of protection for wear surfaces.

Competitors in the industry are Hardchrome Engineering, Laser Cladding Services Australia, and Dura Metal,part of Axalta group a large USA based international coatings specialist. The first couple are small private businesses, I suspect they would only service within their own state. Dura Metal is part of a much bigger international business, but I dont really see them as a direct competitor, they are more selling complete laser cladding machines for manufacturers who want to clad in house. (although that is a potential market for LBL as well>0

Now is the time to take a position, because LBL will release results for this year in August and I expect there will be a further positive reaction.

6/9/18 I have taken a small initial position at 16.5c. I will accumulate any softness.

5/12/18 Well, a lesson in anchoring, I hesitated and didnt buy more because the price kept going up, they were quickly over 20c and having bought at less than 20c I couldnt bring myself to buy more over 20c, today they announced new sales to USA and price jumped 39% in one day - my position is up 93% in 3 months!

I have been fighting my anchoring and trying to find a way to build my position in LBL, finally they fell nearly 15% today and I was able to get an order filled, at 30c, so down from 35c last week. This parcel took our average price to 20c so still up 50% overall.
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