Stuff > General Discussion

Decision Journal

<< < (18/23) > >>

galumay:
$NWH released a pretty poor H1 2021 result, and the share price dropped 20% over the next 2 days, although I already hold a very large position I decided to buy some more. My thinking around this was that my cost base was only 25c and with the shares down 20% to $2.25 I worked out that adding another $20k would only take my cost base up to 40c. I also did a quick & dirty valuation based on the H1 results and it was around the $2.20 mark. My feeling is that the drop in profit resulted in an over reaction from the market, a lot of the decrease was explained by the impact of Covid on employee & contractor cost & materials. P&E was also up because of extra machinery required for their expanding operations.

I think its likely a one off and the full year results will see a return to normalised profit for the business.

Premortem Poor perfomance continued into 2021 with ongoing impacts of Covid despite the start of vaccinations, having recovered slightly the price dropped below $2 on the EOFY results.

Perfomance got worse continuing into 2021 and the business was forced to make impairments and made a loss for the FY, share price collapsed to $1 as a result.

EOFY results were stronger than expected, new acquisitions adding increased value and margin, a number of big contract wins and revenue, NPAT & FCF all increased. Share price returned to above $3.

Realistically none of these scenarios would be too hard to live with, given the very low cost base. My guess would be the probabilities of thes are 30%, 10% and 60%, 60c + 10c +$1.80 = $2.50 as a price expectancy.

Bought $20k more on 20/2

galumay:
Looking at taking a position in a new company, CPT Global, CGO.
CPT Global Limited is a specialist IT consulting services firm. They claim to operate in 3 divisions,

transformation - leveraging technology for business success.
assurance - assured, reliable delivery & operations
optimisation - faster, more efficient technology

From their website,
"CPT Global Limited is a highly regarded, specialist IT consulting services firm with a reputation built over successful engagements across the globe. CPT has been engaged by 80% of the world�s largest banks. We have delivered outcomes and engagements for clients across 35 countries.

CPT is an established business with a high-profile customer base, including a number of Fortune 500 companies. In our home market of Australia, CPT has a strong and stable position in the professional services segment of the Australian information technology market. CPT has experience working for federal and state government in Australia as well as banking, finance, insurance, telecommunications, retail and manufacturing sectors both in Australia, as well as globally. We partner with world leading technology organisations to bring unique value to our clients."

see full analysis here - click here to view

My back of the envelope numbers are the business should be able to make around $4m NPAT $2.8m FCF for the full year. Market cap at 50c is around $20m, and EV about $17m. So on that basis its trading at around 5x earnings and 7x FCF which looks remarkably cheap. EV/EDITDA is around 3 based on annualised EBITDA from H1. Its also paying a dividend that equates to about 6% on the current share price.

FCF is about 4.3c for the half so if we assume 8c for the full year then my quick and dirty range of valuation is over $1

Inversely, for a price of 50c to be fair value by my calculation FCF would have to drop to 3c for the full year. Fairly unlikely given its already made over 4c for the half!

Premortem

The business lost a number of large contracts as the world raced out of Covid, a competitor XYX Tech became the preferred provider of these sorts of IT services, an attempt was made to enter the South & Central American market, but cash spend was high with little or no results, share holders were diluted by a series of CR's and the price plummeted back to around 15c

The entire Tech sector across the world led the drawdown in the 2022 crash of world stockmarkets, share prices were wiped out in the space of a couple of months. Due to CGO having no debt and long term contracts they continued to be profitable and pay a healthy dividend but it was years before the SP recovered.

H1 2021 turned out to be a one off and subsequently by 2022 earnings reverted to 2020 levels, resulting in EPS of around 2.5c and FCF of 3.5c (implying a range of value somewhere round 40-50c

H1 2021 turned out to be a one off and subsequently 2022 earnings reverted to 2019 levels, resulting in FCF of around 1c and a range of value around 20c.

H1 2021 turned out to be the peak of growth and consequently earnings stabilised at around 8c per share, implying a value of somewhere round $1

H1 2021 turned out to be just the start of growth and as the business scaled up, cash gushed down to the bottom line, and unfortunately the business was taken over by a Constellation and although the offer price of $2 provided a great return, we are no longer part owners of this wonderful business.

I think the probabilities are simpler than usual here, the liklihood of the price remaining so depressed in relation to value is very unlikely, most outcomes expressed above would still lead to some closing of value & price IMO. This seems to be one of those rare opportunities where the margin of safety is so great that we should bet big on this an invest a significant position in the company.

5%*15c+5%*20c+25%*50c+5%*20c+50%*$1+10%*$2= 0.75+1+12.5+1+50+20 =85c price expectancy.

galumay:
We are considering making an offer on a new, larger boat. I have had the idea for some time now to have a larger boat that had longer range to allow us to cruise further afield and carry more stores and fuel for the tinny. This would open up more of the coastline for us to explore as we have more time available. Also it means that we could have other friends, particularly Dave, come with us because there would be extra sleeping inside the cabin. (In our current big boat there is only one double inside the cabin.

In light of this I occasionally look at what boats are for sale and see if there are any suitable ones, although the idea was to not purchase anything at least for a couple of years, when Dave & I were closer to retirement. Of course what happened is I found what looks like the perfect boat, a 48' steel boat with a Gardner engine. Its in Newcastle & for sale at $175,000.









Having talked with Sal about it, she is less enthusiastic than me, mainly I think because she doesnt have the same desire to do long trips and also some reservation because she knows my love of actually living on boats and I believe she is worried I might do so again if I had a boat like this. She has suggested that if we do buy a bigger boat it might be better to wait 12 months until she has long service leave and then we could bring something back together from the East Coast.

My belief is that even at $175k the boat is likely a very good buy I have looked at every boat for sale in australia between $120K and $220k and there is nothing else as good as this for our needs in the price range. I am also a bit conflicted though, not sure I am quite ready to take on all the change and effort a bigger boat, moored in the bay would involve. My gut feeling is that if I could pick it up for $150k it is very compelling though, it would be very cheap for what it is at that price, and i would be reasonably comfortable that we could get at least half of that for our current big boat.

To try to test my confirmation bias around the boat I asked Brad, a mate who is a professional marine engineer & skipper to have a look at the boat and tell me what he saw as the issues with it that might make it unsuitable. That idea backfired after he spent 2 hours with me discussing it and came up with no negatives and just positives that I had missed!

So I am close to the point of making a decision about whether to make an offer for the boat of $150k conditional on confirming the condition and inventory is as described in the ad and a sea trial by myself.

The alternatives are to not make an offer and wait until next year and then see if we can find a suitable boat when Sal has her LSL.

Or not to make an offer and work harder to use the big boat we have more and find ways to increase the range.

Or to first sell the current big boat before looking for a bigger boat.

The reasons to not buy a bigger boat is the need to have it moored in the bay and therefore not have the convenience of having the boat in the driveway at home, having to keep it clean from dust, dirt, bird shit etc, having to at least beach it every 6 months to scrub its bum and every 2 years to anti foul. It will undoubtably have some added expenses to run - eg $900 every 2 years for anti fouling.

The reasons to buy one is more optionality with taking friends on trips, boat will be ready to go in the bay so only have to launch the tinny and go, it will be a very comfortable and pleasant 'waterfront apartment' available for us to spend weekends on and/or host friends. It would have the range and fuel economy to cruise much more of the coast line without worrying about fuel for the big boat or tinny. We would get more usable time with the boat moored as we wouldn't be dependent on the tide as we are now to launch the big boat.

It would take about 13 days sea time to drive the boat back, plus how ever many days stopping on the way.

Also showed the boat to Bruce Davey, owner of the charter boat, Wildcard. He was even more enthusiastic than Brad and said it would be a perfect boat for us. Kim Brad's wife, came over with a computer for me to fix and said she had looked at it too and thought it was a fantastic boat.

In the face of such enthusiasm from a range of professional sea farers I emailed an offer of 150k to the broker.

16/4 - Found out our offer was unsuccessful.

galumay:

--- Quote from: galumay on August 19, 2020, 01:46:31 PM ---Spent a lot of time considering buying the storage sheds at 3A Miller Close, was going to offer $300k which was the valuation i reverse engineered from needing a total return within 10 years due to catostrophic risk. Was going to use the IP line of credit. Decided in the end too risky even at 300k.

--- End quote ---

Revisiting this decision, we actually did make an offer at $300k but it was not accepted.

I have been looking at this investment using the SMSF as the vehicle. The broad thinking is that I have essentially seen the value of the SMSF rise by the about $300k this year, so enough to cover most of the purchase price of the property, it would diversify the SMSF out of 100% equities, and realise some of the gains. I have got comfortable with the catastrophic risk, as long as most of the capital is protected (by the returns in the interim), my assessment of the likelihood of the risk has greatly reduced, but still exists. The risk i have focussed on more this time is trying to understand what the investment would look like post the mine closing.

If the town has little impact then the investment looks very good, at 80% occupancy the returns would approach $40k net in the retirement phase (0 tax)
or just over $30 in the accumulation phase. (11%-13% return)

If we assume a moderate negative impact, either rental income dropping or higher vacancy rate then returns might drop to around $30k (assume 0 tax)
and a return of around 10%. (assumes we take over management to reduce costs and spend less on maint.)  (7 units at $500)

If we assume a serious impact, lower rent AND lower occupancy, we could see returns drop to $7500 and a 2.5% return. (5 units at $250)

The cutoff point for basically no return would be the rent halved and only 3 units rented with all costs minimised.

Thinking about expectancy for this, and not including catostrophic risk, little impact = 20%, moderate impact = 50% serious impact=20, 0 return = 10%

40*20%+30*50%+7.5*20% + $0= 8+15+1.5=24.5 or around an 8.2% return expectancy.

Obviously one question is how confident I am that I could achieve similar returns by leaving the money in equities, as its a lot easier to own parts of businesses rather than running them! My CAGR has been at about 8% the last few years, but that is in a runaway bull market so that could change significantly.

I have been thinking about this some more, and I feel like putting that amount of capital into one asset, with catastrophic risk and market risk as well as all the worry and concern with running the 'business' - for a return expectancy that is less than my long term absolute benchmark for investing just feels wrong.

I would rather the passive business ownership that the fractional ownership that shares in public companies offers, I get less of the profit than an active bsuiness owner, but none of the time cost or stress, or capital requirements. I also realised that the idea of a share portfolio being passive business ownership explains why I am always wary of the tech disrupter businesses that are so popular with speculators these days. I just cant develop any conviction that these businesses will still be around in 10 years. When I look at many of the businesses I passively own in the SMSF, I have conviction most of them will be round in 10 years and still profitable in their core business. Sure some will stuff up with poor management and bad capital allocation, some may be hit by black swan events, but most will just steadily and boringly keep doing what they do and paying me a share of the FCF that generates.

They nearly all do something that is really simple to understand, and people will still need in 10 years time.

I am really not at all sure Gove will need 14 small industrial units in 10 years.

Just today I noticed new shipping containers out the back of Mafia Motors and a big graded pad, maybe they are going to put a heap of containers there for long term storage - and there goes part of the business case for the Miller close units.

galumay:
I have found another boat that we think may be suitable for what we are looking for, its a 14.7m converted fishing boat, fibreglass hull with a Gardner engine.



1994 G Stewart Design 14.70m Boat (Sleeps 9)

MACHINERY: Moulded GRP construction with Gardner 6LXB six cylinder naturally aspirated 120HP diesel fueled engine solid mounted to heavy engine bearer frames. Close coupled Nigata 3:1 hydraulic gearbox carrying 75mm stainless steel propeller shaft through conventional stern gland arrangement. Fixed four bladed NFM propeller. Coated steel diesel fuel tanks contained within separate compartment forward of engine room and connected to main engine via RACOR type primary filter system. Desalination Plant.

ELECTRICS: Open auxiliary generator unit comprised of Perkins three cylinder diesel fueled engine connected to Stamford 22 Kva alternator unit. Circuit breaker protection in main AC distribution board sited at aft end galley area. 12 vDC alternator off main engine to battery charging for main start batteries.

ENGINE ROOM: 1 x Bank 24vDC � engine starting, 1 x Bank 12vDC � Domestic Batteries

WHEELHOUSE: 1 x Bank (4x6) domestic house batteries with solar and wind generator charging system.

Victron Phoenix 24/3000 DC/AC inverter unit for 240vAC supply to domestic supply. Circuit breaker protection to electric system. 4 x Solar panels with Plasmatronics regulated controller unit.

GALLERY: Sited along starboard cabin side and across forward cabin area. Equipped with: 1 x Euromaid SC205 electric stove/oven, 1 x Samsung microwave oven, 1 x Single bowl Stainless steel sink with pressurized fresh water supply. Gallery utensil and crockery stowages under and adjacent.

HEAD: Located portside aft end of main cabin house in separate enclosed compartment. Equipped with domestic pan and cistern ceramic toilet unit with direct discharge to holding tank. Small plastic vanity unit with fresh water supply. Electric hot water shower unit.

INTERNAL CONFIGURATION: Anchor locker space right forward. Collision bulkhead. Forward cabin area with three hull side bunks, stowages under and adjacent. Steps up to main deck area. Freezer room contained within paved bulkheads and accessed via deck hatch within main saloon. Main saloon area with port side sliding door access. Curved bench arrangement across forward section with gallery sink and benches down starboard side. Main saloon table and chairs landed on deck which is above engine room space. Steps down starboard side to aft cabin fitted with three single bunks, storage under and adjacent. Stainless steel companionway ladder up forward to bridge deck with main cabin equipped with double bed arrangement. Main helm position at forward end.

DECK EQUIPMENT: Cleats, leads and bitts as would normally be associated with vessel of this type and size. Raised GRP/timber bulwarks extend around the vessel.

NAVIGATION EQUIPMENT: 1 x AP 5 autopilot system, 1 x Furuno Radar, 1 x Furuno Sounder, 1 x Furuno GPS WAAS Navigator unit, 1 x Raytheon Wind unit, 1 x Lorenz Starlight Pro GPS unit, 1 x GME GX 600 VHF Transceiver, 1 x Uniden UH089SX UHF Transceiver, 1 x Pioneer AM/FM CD unit, 1 x Saura Keiki Magnetic Compass.

SAFETY EQUIPMENT: 1 x MT 400 type EPIRB � no registration label, 1 x Set pyrotechnics for inshore usage, 1 x Manual bilge pump � external, 1 x Mechanical bilge pump to manifold bilge suction system, 1 x 24vDC Electric bilge pump with float switch � engine room, 1 x 24vDC bilge pump beneath stern gland, 2 x Lifebuoys, 18 x Lifejackets.

MOORING GEAR: 1 x 130lb CQR anchor shackled to 130m of 16mm galvanized chain carried over hydraulic driven anchor winch system, 1 x Danforth type sand anchor with 6m of 12mm chain bent onto length synthetic mooring line, Sundry mooring line and fenders.

STEERING GEAR: Wheel steering at main helm position connected by hydraulics to single ram arrangement. Square head on rubber stock for emergency steering. Conventional semi balanced plate rudder carried on upper internal bearing arrangement with shoe plate.

I asked some questions about the boat and this is the replies,

* What do you know of the history of the boat before you bought it? Where was she built, and do you know anything about the designer, G Stewart?
It was built in Eden, NSW by G Stewart, it's his own design fishing boat built for the Bass Strait fishing and has a full fibreglass hull but has lines scribed into it. To make it look like it has been planked.

* What trips has your Dad done in the boat and how would he describe her sea handling?
In my opinion you won't find a better sea boat, it also has 5 metre trawler stabilisers.

* What is her beam and draught?
Length 14.7m x Beam 5m x Draft 2m

* Has the boat had any form of survey in recent times?
Yes approximately 2 years ago it was slipped and anti fouled

* Do you have any idea what her displacement is, I am guessing at least 30 tonnes?
40 tonnes

* How many hours has the Gardner done and what if any work has been done to it?
I've had the injector pump and injectors rebuilt it uses a little oil but will run forever because its 6LXB

* What size are the fuel tanks?
4500 litres divided into 4 tanks

* What size is the water tank?
Approx. 1000 litres

* Does the toilet use salt water to flush?
Yes salt water to flush and has a holding tank with a macerator pump.

* What is the cruising and top speed?
8 to 10 knots depending on tide.

* What is the fuel consumption per nautical mile at cruise?
Approx. 10 Litres per hour @ 1300 revs.

* When was she last slipped and anti fouled?
Approx. 2 Years ago.

* What sort of fridge does she have in the galley?
Household Fridge/Freezer, a Tuckerbox Deep Freezer for bait and electric stove just like inside a house.

* Roughly what are the dimensions of the freezer room? I guess the genset would need to be running for the freezer to operate? (too big for the solar battery system?)
Freezer room is 5m x 4m, it's a Blast Freezer (I never used it as a freezer, only used as a storage area).

* Does all the electronics, radar, sounder, GPS etc, all work well with no faults or failing LCD screens?
Yes all works well except for Pilot which is new but has a wire problem but I don't trust Pilots I prefer to steer myself.

* What size is the tinny you have on the davits on the transom?
4.3m Clark with 60hp Merk.

I am still trying to find out what trips the owner has done on the boat and I have asked again about how many hours the engine has done, he doesnt know so that it a bit of an unknown, although less important with a Gardner than other motors.

Remaining things to check are what the condition of the coolant is like, it would need anti fouling and survey.

I am close to booking flights to go down and look at it, my concern is spending the money to go down and look at it and not having first refusal to purchase it. I have in mind that if it is all it seems then if I could get it for $100k, and pay for slipping, antifoul & survey and make the sale subject to the survey I would be comfortable.

Some more pics here,







Ok, i have found the first problem, after enquiring about the "little bit of oil" it uses, I found out its about 2L for 18h running, that seems a little excessive, googlefu to check it out.

Looked into the oil consumption, no doubt its too high, final confirmation came when I emailed Gardner Marine in the UK and they replied,

Oil usage completely depends on the worn state of the engine and of course on how hard, or easy, the engine is being run. It is therefore impossible to get an exact reading from hours alone.
 
We measure oil usage as a percentage of fuel burn always. It normally burns oil at a rate of 0.25 � 0.5 % of fuel burn. Note that the high value of 0.5% can be due to a worn engine, OR a new engine (until it beds in) or an old but not worn but glazed engine.
 
Anyhow, as an example:
 
Cruising speed of 1250RPM would be in the region of 10L fuel burn per hour (it could be far more or less depending on the hull, trawling etc, but lets go with this).
In 18 hours, that is 180L of fuel.
Worse case oil burn at that fuel burn would be 180 x 0.005 = 0.9L
 
So, although a guess, I would suggest that 2L is on the high side, but it does need to be considered alongside the facts given above. You will need to confirm if it is burning it or leaking it. A good give away is the breather gas � if the engine is worn, there will be a direct correlation between that and high crankcase breathing.

That was the end of the research for me, the reason to purchase a boat with a Gardner is the extremely long life with no maintenance required, to buy one that had issues that needed fixing made no sense at all.

None the less I spoke with Brad & Kim as well as Dan from Iron Lady and Arthur to get their views, consensus was that the engine oil consuption made it a no. Brad & Kim also raised the additions to the top cabin, did the boat have a stability test after it was added? (almost certainly no.), what timber was used, is it appropriate for the tropics? How hot would it be with it being unlined? What if you took a big wave over the bow that hit the added cabin?

In the end it was too many uncertainties and with the oil issue it lost any conviction for me. Again, more learnt by going thru the due diligence and an even better idea of what we really want.

Navigation

[0] Message Index

[#] Next page

[*] Previous page