Novae Takeover!


On May 18th I wrote a post analysing Novae. My premise was that the Insurance Group’s net net working capital was very nearly at the same level as the market capitalisation of the company. You can read the full analysis here

It looks like I was right to identify this as a value investment as Axis Capital Holdings Ltd today agreed a 700p per share cash takeover of Novae. Interestingly, the shares are now trading at a slight premium to 700p as perhaps there is a potential for a second bidder.

The current price represents a 27% profit on my original purchase price – so not stellar but a decent amount for a couple of hours work.

The issue with value investing is that you have no power over when the market recognises that value. It can be within weeks, as in this case, or it could be years. It’s nice to get the occasional quick turnaround to keep things interesting.

Makes up for my currently disastrous inability to predict where on earth Oil prices are going to go next.

Good luck all.


Performance Report – Q1 Year 2 – June 2017

ISA balance stands at £187,951 as at end of Q1 in year 2 of the project. That brings the grand total profit for the Quarter to a resounding…………..£186.

That’s a lot of effort for £186!

So what did I get wrong? A few things went down (Glencore, Next) a few things didn’t move when I thought they would (Sports Direct, BTG) and one moved up significantly (INSE) – but unfortunately just after I’d sold it.

This was a tough quarter to call. Continued political unrest at home and abroad – in particular the issue with the Saudi’s and the Qataris would normally lead to a pop up in the Oil price – not this time it would appear – we saw 6 month lows last week – the opposite of what I’d predicted.

Easy to let a quarter like this get to you – if you do, you’re not going to last as everyone has bad months, quarters and even years from time to time.

Back to the books. I’ll see if I can dig one out on patience….


The Week ahead


Been a busy couple of weeks hence my lack of posts. We have the UK General Election on thursday this week. Another seemingly foregone conclusion – but after Brexit and Trump I am definitely not ruling out a surprise result this time around. What a massive own goal it would be for Tresemme to call an election to improve her bargaining power only to watch it melt away. I suspect they didn’t get on but she really should have asked Cameron about that strategy.

After the terrible events in Manchester and London since my last post I’ve been interested to see that the markets have not really sold off. I remember the 1980s when the IRA were at the height of their bombing campaign – didn’t work then, won’t work now.

However, I do wonder whether we are entering a period of readjustment for the equity markets. The U.S continues to set record highs on not a lot of economic evidence and the UK seems to have shrugged off the Brexit issues even before we have started the negotiations. I don’t want to be the miserable bear in the corner but valuations in some sectors feel distinctly toppy heading into the summer.

Not so Oil. Earlier last week it smashed through $50 and looked set to soar, but didn’t make it and sank back. Seems to be pretty volatile within a range of $47-51 with no clear direction indicated to me at the moment. Overall I think this is a long term buy with low leverage and wide stops. If you try to pick direction in small time frames I think you could get burnt.

Good luck all.



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