Monthly Archives: May 2017

Investment Analysis – Novae Group

Novae Group PLC is a Lloyds underwriting firm covering insurance and reinsurance in the property and marine, aviation and political risk markets.

Below is my analysis of the potential investment

They have been listed since the late 90s and are a solid company. What peaked my interest was their 52 week negative break out recently:

Novae Quarterly share price and volume

Looking at the financials as at 31/12/16, things are looking pretty good from a Value investing perspective.

If I take current assets of 533 mln and compare to short term creditors of 83.3 mln I am left with an excess of 449.7 mln.

Normally at this point I would take off long term liabilities, but this is an insurance company so we have to compare the long term provisions against insurable losses to the Fixed Investments amount. This is the “float” that Buffett talks about a lot with insurance companies – the fact that they get upfront premiums for events that may or may not happen in the distant future. Insurance companies therefore have a cash float with which they can invest.

Novae assess their long term liabilities to be valued at 1,982 mln vs their Fixed Investments valuation of 1,840, leaving an effective long term deficit, or liability of 142 mln.

If I take this figure away from the 449.7 mln excess I get a net net working capital of 307.9 mln, which is very close to the current market capitalisation of 362.39 mln. This is very close to being able to buy £1 of cash / cash equivalent for £1 in the market, taking account of very little future earnings or outperformance on underwriting outcomes. Financially it therefore looks like a bargain in my analysis.

So why is it trading at that price?

So far this is looking like an interesting trade. I now have to work out whether there is a good reason for the fall in share price.

Running down some of my checks:

  • Major Shareholders – some names I respect including M&G, AXA, Legal and General. Neptune Asset management sent out an RNS two days ago stating they had moved their position to in excess of 12% from the previously reported 8.33%
  • Review recent trading update on 10th May. Premiums up 13.8% at constant rates of exchange. Exiting of Casualty business where profits unsustainable shows management wiling to take action where needed. Company admitted that combined ratio likely to be above 100% – i.e. that premiums received would be lower than claims paid, reducing the overall “float”.
  • Dividends more than halved in 2016 vs previous 3 years
  • Underwriting loss in 2016, but that isn’t too unusual or extreme
  • Investor’s Chronicle changed their recommendation to sell a week ago – that means the herd has turned – positive for buying potential
  • CFO left company in October 2016 and then accounts were “restated” – reducing net assets by 13.5 mln. This implies a change of accounting policy to a less aggressive interpretation. Unfortunate but appears to be in process of being dealt with.

Final Analysis

There is some hair here, but it seems to me like a classic stock market overreaction. I’m not sure if this is a near-term winner, the charts would imply it may have some way to fall yet, but picking the bottom is not an art I’ve ever been any good at.

The absolute values of the company seem strong. The trading update stated that investment income was above target, and management are taking actions to exit less profitable sectors and clean up accounting policy.

Neptune taking their stake up to above 12% could mean a take over in the offing, but I’m not making the investment on that assumption as I think they are probably just seeing the same value that I see.

Overall I’m a fan of this one as I think the underlying cash and other current asset positions help to hedge against the share price falling too far.

Current price is 564p so I am putting in an after hours limit order at 559p to see if I can get better execution on the open tomorrow.

Good luck all.



May Performance Report

Slightly early on my end of month review for May as I’m going to be away for a few days so I will miss my normal 20th deadline.

May has been pretty flat for me. There has been some interesting action in both Purecircle (LSE: PURE) and Glencore (LSE:GLEN) but nothing that has made me nervous that it wasn’t just bouncing around in a range. So it has proven and they are both now returning to a more normal level. I did add some Glencore at 284p in my SIPP but that isn’t the subject of discussion here.

So in the interests of transparency, here is my full holding in my ISA with amounts and values. The below is a summary so for some names there are multiple trades underlying and only the average purchase price is shown:


Epic Quantity Name Purchase Cost (£) Bid price (p) Total change (%) Market value (£)
BOI 10,000 BANK OF IRELAND 13.375% PERP SUB BDS GBP 9,672.57 205.5 112.46 20,550.00
BTG 1,517 BTG ORD GBP0.10 5,329.63 671.5 91.13 10,186.66
EBT8 9,000 BRITISH TELECOM 5.75% SNR 07/12/28 GBP1000 8,292.93 133.46 44.84 12,011.85
LLOY 13,609 LLOYDS BANKING GP ORD GBP0.1 7,499.64 71.52 29.78 9,733.16
OMG 10,000 OXFORD METRICS PLC ORD GBP0.0025 4,688.95 50.25 7.17 5,025.00
NXT 325 NEXT ORD GBP0.10 14,921.40 4,300.00 -6.34 13,975.00
EOG 77,035 EUROPA OIL & GAS ORD GBP0.01 4,999.97 7.75 19.4 5,970.21
SPD 7,499 SPORTS DIRECT INTL ORD GBP0.10 24,991.80 299.9 -10.01 22,489.50
PURE 2,011 PURECIRCLE LTD ORD USD0.10 (DI) 4,999.23 312.5 25.71 6,284.38
GLEN 13,466 GLENCORE PLC ORD USD0.01 20,007.67 290 95.18 39,051.40
KIN 702,791 KIN GROUP PLC ORD GBP0.0001 8,999.97 0.12 -90.43 860.92
4,865.16 JPMORGAN AM UK LTD EMERGING EUROPEEQ C NET GBP 5,367.00 207.6 88.19 10,100.07
BEZ 3,005 BEAZLEY PLC (UK) ORD GBP0.05 9,998.00 448.2 34.71 13,468.41
Cash 19660.41
Simple Return 26.24%
Annualised Return 22.50%

14 months into the project I’m reasonably happy with the good foundation, but I do need to stop making silly mistakes.

You may recall me talking about Fitbug, which has now changed it’s name to KILN Ltd (LSE: KIN), which seems appropriate as it is a ‘kin pain in my portfolio. I’ve held on to it so long that it has purely option value now and actually isn’t worth getting rid of. I think it serves a more valuable purpose sitting there, reminding me of what happens if you don’t take your losses on the chin early. Hope is never a great strategy as they say.

I am holding a fairly large percentage of my portfolio in Sports Direct (LSE: SPD) as I still believe firmly in the management. Mr Ashley, as I’ve said before, may not be the most sophisticated communicator (a huge sin with the City Stock Analyst elite), but he does know how to sell a football shirt. I reviewed SPD about a year ago but I stand by all I said then and will be holding on to my shares. You can see the review by clicking here

Good luck all

The loneliness of the long distance investor

I was listening to a youtube interview of Peter Brandt earlier today by Aaron Fifield on his chat with traders channel. When you become a full time investor, sat in your house or flat with no-one to speak to all day, you start to seek out these ways of checking yourself and validating what you are doing or not doing.

Great quote from Mr Brandt (who has been investing since the early 1970s) around the idea that trading is like going to University but the market decides what tuition you are going to get.

I’ve had some fairly harsh tuition during this process as well as some luck. My tips for anyone thinking of committing to this life as an investor are:

  1. Don’t give up your job until you have 2 years money in the pot. You can use this money to trade but you have to accept the possibility (no matter how good you are) that you might lose money in your first year.
  2. Follow Guy Spier’s advice and don’t constantly look at your trades as the flashing buttons are a call to action. Otherwise you can over-trade, giving lots of commissions to the dealers. I would add that this works for value investing with long hold periods – if your thing is to trade Oil then maybe you need to keep your eyes on it.
  3. if you are trading something such as Oil that requires you to watch the screens, don’t do it all day. Have a set period of time for you to trade. The market opening is usually best for this type of trade as that is the point at which the market is the most volatile. You therefore get the most momentum. I know one person who trades the first two hours of every day then shuts it all down again.
  4. If you are short term trading, have a daily P&L target. When you hit that target, even if within the first 30 minutes of the day, take the profit and shut your computer down. The rest of the day is not an opportunity for you to triple your target, it is an opportunity to give it all back. If you are a longer term investor this is a more difficult issue. The equivalent is to let your winners run and have a target value. When a share hits your original target, re-evaluate to see if it is still good value.
  5. Don’t forget to make your target a size which accounts for the fact that you will have losing days too.
  6. Have a maximum loss per day. If you lose more than the maximum you aren’t going to help yourself by chasing those losses. Shut it down, and go to the gym, pub, whatever.
  7. Read, read and read. There is a lot of very valuable information out there that is either free or cheap. See my list of 10 investment books to read to get started.  There are thousands of ways to trade. The only way to find yours is to read books, watch youtube videos, listen to podcasts – whatever works for you, but you have to educate yourself. You wouldn’t try to fix an aeroplane without learning how first.
  8. If you are over-trading, consider whether you are gambling. There is a difference. Gamblers are looking for the thrill – you will lose over the long run. By contrast, making money in the markets requires consistent, disciplined processes.
  9. Treat trading or investing like your job. That’s because it is your job. At the end of the day as an investor you have to find a way to make it pay the bills.
  10. Get some outlet. Talk to other traders, write on blogs, use bulletin boards. But be careful not to listen too much to “share tips” on bulletin boards. If you are interested in this point, check out my Bulletin Board User tips

Good luck all.


Re-nationalisation? Watch out for low flying Black Swans

The leaked Labour manifesto was causing a stir in the papers and the radio today, but not in the market it would appear.

First Group (LSE: FGP) which operates various railway licences and other nationalisation targets of Mr Corbyn could be expected to plummet. After all, when companies get nationalised it doesn’t tend to be at the top of the Government’s list of priorities to pay a fair price to the current shareholders.

And yet today FGP shares went….up!

Surely not. How about another potential nationalisation target, the Royal Mail (LSE: RMG)?………..shares went up!

This highlights one of the difficulties in investing. Which signals do you listen to and which do you ignore? Presumably the signal from the Labour party didn’t feed through to a signal to the market because no-one expects Mr Corbyn to win.

This is where you have to look at risk adjusted investment decisions. I can understand why you wouldn’t necessarily be pushed into selling the above shares if you already held them and were a big fan. But to buy them today? What real benefit is there to that?

So Labour will probably lose. No nationalisation. Carry on as before. But but but…..Brexit, Trump, 39 year old French President, Leicester winning the league. Strange things can and do happen, especially in the last 12 months it seems to me – Why take the risk if there isn’t a large payoff to being right? Heads you don’t lose anything, Tails you lose big.

So the market says no re-nationalisation and I suspect it is right but be careful of low-flying Black Swans.

Investment Analysis: Europa Oil & Gas

Europa Oil & Gas (LSE:EOG) is one of the “punts” that I talked about in my Oil & Gas Valuation post a week or so ago.

There is a way to value Oil & Gas companies, and then there is the hit and hope. EOG is somewhere in the middle. They aren’t a large company by any means, but they do look like a well run Oil & Gas company.

Investment Analysis

So when I decided to buy into them back in January, my thought process was along the lines of:

  • Europa has a Board, and particularly a CEO who know what they are doing. They have a particularly strong Geological background – important for an exploration company
  • The company is well funded for the next 12-24 months allowing them to focus on the day job rather than endless fund raising
  • They communicate with their investors – explaining the upsides and the downsides

I therefore put a small investment of £5k into EOG, expecting it to have a digital outcome

1) go to more or less zero or

2) literally strike oil.

This morning’s RNS release implies the latter is moving closer, and talk is now of broker price targets north of 60p. As I write the bid for EOG is 7.5p around 11% higher than my purchase price.

If you look at the RNS in detail, there has been a CPR (competent person’s report) on the mean average expected yield of a couple of sites off the coast of Ireland at 553 million barrels of oil equivalent. To put this in context, EOG has unconfirmed resources of about 4 billion boe, but is producing just 110 boepd in HY 2017.

In other words, it has large potential resources but is not currently producing that much in terms of product.

It will therefore be difficult to apply the valuation model to this company I discussed in my Oil & Gas Valuation report, because they don’t have much in the way of Proved and Probable (2P) resources to evaluate.

Stick, Twist or Fold?

The company is still a long way away from actually producing those 553 million boe, and the expected success of these sites is only 12% and 15% respectively. However, this investment is moving in the right direction and I will certainly not be selling my shares for a measly 11% gain.

Equally, I’m not sure I’ve seen quite enough yet to start adding to my initial stake. When I start loading up I want the investment to move quite quickly. When I have a small amount at risk, like here, I can afford to be patient, and that is what I think I may have to do. I’m hoping that by the end of 2017 there will be some more solid, confirmed evidence of the economics of actually getting the oil extracted, at which point I think this share could take off.

This is one of my long shots, but having a few of these in the portfolio keeps life interesting and I am going to stick with what I have, at least until the end of the year unless something very good or very bad happens to change my mind.

If you want to read the full RNS release, you can click on it here