The Great Irish Share Valuation Project: FY-2013 Performance

Wexboy_Value

TGISVP – 2013 Portfolio Performance

Link: http://wexboy.wordpress.com/2014/01/16/tgisvp-2013-portfolio-performance/

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OK, a second year of The Great Irish Share Valuation Project is now complete – for reference, here’s my mid-year review, now it’s time for the real post-mortem! Let’s take care of a little housekeeping first:


- Between Jan & May last year, I published individual reviews/valuations for 73 different Irish companies, and kept a file recording each share price (at time of evaluation) & price target to properly assess performance.


- Post mid-year, in Aug-Sep 2013, I published (& recorded) some additional reviews/valuations for 3 new Irish IPOs: Green REIT (GRN:ID), Keywords Studios (KWS:LN), and Ardmore Shipping (ASC:US).


- Since mid-year, I’ve made no other changes to my TGISVP file, except: i) Donegal Creameries (DCP:ID) changed its name to Donegal Investment Group (DCP:ID), while United Drug (UDG:LN) became UDG Healthcare (UDG:LN), ii) Kedco (KED:LN) changed its name to REACT Energy (REAC:LN), and also consolidated its shares on a 1-for-50 basis, iii) Grafton Group (GFTU:LN) migrated to a London-only listing, iv) Elan Corp (ELN:US) was acquired by Perrigo Co (PRGO:US), and finally v) TVC Holdings (TVCH:ID) paid its shareholders a EUR 0.495 special dividend.


- Since the (major)review/valuation phase was spread over 4 1/2 mths, my benchmark (the ISEQ) needs to be adjusted accordingly. I’m going to reference the mid-point (in terms of companies valued) of this phase – i.e. Feb-25th – as the most appropriate start date for the index.


Second, before we check out performance, let’s have a little fun surveying the Top Winners & Losers of 2013. [Note: These tables are solely based on each individual stock's performance since its TGISVP evaluation date (i.e. since Jan-May, or Aug-Sep) - so they'll differ from (but mostly overlap with) any other FY-2103 performance tables you've come across].


Here’s the glorious Top 10 Winners:





Wow, look at those figures, Prime Active Capital (PACC:ID) & Independent News & Media (INM:ID) look like long-lost twins! But I had very different opinions about them. PACC worked out spectacularly – it remains an ugly business, but still deserved a huge revaluation (bringing it within spitting distance of my EUR 0.132 target price). On the other hand, INM presented a v binary outcome… I chose defeat, but they managed to snatch victory in the end – raising EUR 40 million of cash, and substantially restructuring their debt & pension liabilities. In light of this, the year-end share price was not unreasonable (er, it’s rallied another 51% since!?) – but I have to wonder if they’re simply re-arranging the deck-chairs here, revenue trends remain horrible.

Greencore Group (GNC:LN) remains inexplicable. The company reported full-year revenue growth of just 3%, net debt plus pension deficit plus trade payables (net of receivables) totaling GBP 560 Million, and produced just GBP 31.6 M of free cash flow (vs. a prior GBP 42.0 M) – and GNC still manages to sport a GBP 941 M market cap & an estimated P/E of 15.2!? The rest of the table enjoyed generally well-deserved revaluations, plus healthy operational progress across the board – most notably First Derivatives (FDP:LN), which surprised me with some v impressive contract/news flow (for example, this deal with the NYSE Euronext). Kentz Corp (KENZ:LN) also rejected a number of bid approaches – quite rightly I believe – and quickly followed through with some hefty contract wins, and a significant acquisition (of Valerus FS).


And yes, beat me with a wooden spoon, I’ve no bloody idea how Karelian Diamond Resources (KDR:LN) managed to end up top of the charts!? Sure, they’ve released the usual positive news flow you expect from a junior resource stock, but ultimately nothing tangible. Plus the company continues to survive hand-to-mouth in terms of cash… Then again, as I write this, the stock’s up another +25% today – clearly it’s become a real muppet stock du jour.


Now here’s the (not so unexpected) Top 10 Losers – noting the Irish market’s otherwise spectacular performance in 2013, shareholders may finally want to question why they persist with this kind of rubbish…




Oh Jesus on the cross, what a sorry bunch…not worth talking about, eh!? Ah go on, let’s just mention two of ‘em. I recall being loudly & roundly criticized for taking a negative stance on Providence Resources (PVR:LN). Sure, I’d love to see PVR turn into Ireland’s great offshore hope, but blind faith & patriotism play no part in valuing (or investing in) stocks. I was being kind anyway – my outrageous prediction of a 41% decline was bested by PVR’s actual 64% collapse. I still await the kind emails… And you must agree – there’s a certain poetic justice in seeing US Oil & Gas (USOP:G4), the biggest muppet trap of them all, come in dead last! Well, it’s a friggin' tragedy really, because I already wrote that play sixteen months ago…


OK, moving on, so how did the TGISVP portfolios perform?!


[First, here's my usual reminder of how they were constructed:


TGISVP – Beta Portfolio: Assume an investor goes equally long all 29 stocks with positive Upside Potential (e.g. invests EUR 1 in each stock, for a total of EUR 29). The other 47 stocks, identified as neutral (2) or over-valued (45), are ignored. The portfolio return contribution from each stock is simply its Gain/(Loss)%/29.

TGISVP – Smart Beta Portfolio: Stocks are chosen on the same basis as the Beta Portfolio, with one twist: All 29 stocks are divided into quartiles, and assume EUR 4 is invested in each top quartile stock, 3 EUR in the next quartile stocks, down to EUR 1 in the bottom quartile stocks (for a total of EUR 74). This preserves diversification, but focuses the portfolio on stocks with the most Upside Potential.

TGISVP – Alpha Portfolio: Same as the Beta Portfolio on the long side. But also assume a short overlay of all 45 over-valued stocks, with EUR (1) invested in each stock short. This essentially adds a second inverse Beta Portfolio.

TGISVP - Smart Alpha Portfolio: Same as the Smart Beta Portfolio on the long side. Again, assume a short overlay of all 45 over-valued stocks. In similar fashion, we divide these stocks into quartiles, and invest from EUR (1) to EUR (4) (for the most over-valued quartile) in each stock short.]





[Remember, the benchmark performance above is only from Feb-25th - the ISEQ's performance for FY-2013 was actually +33.6%.]


Again, as with my last post, it’s been a game of two halves – but looking v different here… In H1-2013, my Beta portfolios trailed the benchmark – but since the index scored a single-digit return & we’re talking about an average 4 mth comparison period, that was never v relevant. On the other hand, the Alpha portfolios bounded ahead – on the back of a junior resource stock shorts pretty much across the board. Since then, we’ve seen a v different H2-2013 performance – though noting the remarkable index result, the FY-2013 outcome for the portfolios was actually somewhat predictable…


For 2013, the Beta & Smart Beta portfolios ultimately out-performed by +7.5% & +6.0%, respectively.


With most stocks gaining fairly indiscriminately, it’s not surprising there was little to gain from the differentiated weightings of the Smart Beta portfolio – in the end, they actually detracted slightly from its out-performance. However, my stock-picking made a v decent contribution. The stocks I ignored fell well short of the benchmark with a (simple average) gain of just 11% – while my longs enjoyed most success with (for example) UTV Media (UTV:LN), Bank of Ireland (BKIR:ID), Kentz Corp (KENZ:LN), CPL Resources (CPL:ID), and particularly Prime Active Capital (PACC:ID).


For 2013, the Alpha & Smart Alpha portfolios ultimately under-performed by (8.2)% & (1.4)%, respectively.


But in a market that was on fire, that’s exactly what one would expect from long-short portfolios – plus they still delivered highly attractive returns, in absolute terms. And if I’m permitted a small moan, I think it’s fair to say there was a little bad luck involved. Because the losses on Independent News & Media (INM:ID) & Karelian Diamond Resources (KDR:LN) were exceptional - the rest of my shorts actually delivered a positive contribution! [Albeit one comprised of a spectacular near-30% gain from junior resource stock shorts...mostly offset by losses from virtually all of the non-resource shorts]. Fortunately, in my Smart Alpha portfolio, increased short weightings in many of the v worst stocks clawed back most of this under-performance.

All in all, I’d say it was a pretty good year’s work…


And now here we are, it’s mid-January – I’m already behind, but still pondering whether I’ll take another run at The Great Irish Share Valuation Project in 2014. I obviously need to decide shortly – if you have any feedback, comments or suggestions, feel free to email me at wexboymail@yahoo.com, or just comment below. And best of luck for 2014!


For reference, here’s my TGISVP file:


TGISVP FY-2013 Performance

Sonnenblumen

Makes very interesting reading, well done and thanks for doing the analysis. I (and no doubt many others) would be very interested to read your forecasts/comments for 2014.

lucky john

Its probably the most comprehensive independent attempt at putting a value, present and future, on every irish company's share price. Well worth reading and I look forward to the 2014 report. Not always right as I'm sure wexboy would admit but that doesn't devalue the actual research.


http://wexboy.wordpress.com/2013/12/10/so-growth-or-value/#more-7372 I thought this was an interesting blog post as well and maybe deserves a tread of its own.

Procyon

Wexboy_Value wrote: »

And now here we are, it’s mid-January – I’m already behind, but still pondering whether I’ll take another run at The Great Irish Share Valuation Project in 2014. I obviously need to decide shortly – if you have any feedback, comments or suggestions, feel free to email me at wexboymail@yahoo.com, or just comment below. And best of luck for 2014!

Plz give us another iteration of "The Great Irish Share Valuation Project"!

I've enjoyed reading these blogs and learnt quite a bit.

Grawns

Always a treat to read your work. I'm a huge fan and also have learned loads. Please keep up the good work

venividi

Procyon wrote: »

Plz give us another iteration of "The Great Irish Share Valuation Project"!

I've enjoyed reading these blogs and learnt quite a bit.

+1