Portfolio change – $SAGCV sold

An update on a sold position $SAGCV as well as some additional thoughts on one of my holdings, $ESH:SP. A full portfolio update and 2016 performance report will be following in the next week or two.

Saga Furs $SAGCV

I sold my entire position in this company after becoming increasingly uncomfortable with it. They don’t provide financial updates in a timely manner, the ones they do are often not in English, and they are very susceptible to fur prices over which they have no control, which caused them to make a loss in the latest period reported. The shares may do well if fur prices recover but I’m not interested. In typical fashion, the shares are up 10% since I sold, only one day later >:(

The shares sold for slightly lower than when I bought them, but thanks to favourable currency movement I made 6% after fees.

800 Super Holdings $ESH:SP

These shares are up 108% since I bought, so I thought it was a good time to reassess them. They’ve had a lot of revenue growth in recent years and the balance sheet has expanded, but accounts receivable days has stayed static from 82 days in 2011 to 78 days in 2016 which is good. It shows that revenue isn’t increasing by aggressive accounting.

They are currently at a P/E of 10.5, and oddly haven’t traded at such large multiples since they listed, which I find interesting considering they are a decent company, paying dividends, and growing revenue every year. Their return on capital has also increased, from 15.8% in 2011 and 18.6% in 2012 (I calculate return on capital as Net profit / (S.H.Equity + debt – cash).

Levels of debt have been increasing, and in the last year they had a large cash balance of S$20m yet short term debt of S$11m. This isn’t the only year they have had both cash and short term debt. This is always suspicious to me as companies often time cash flows to make the year end look good. But it’s noted that these are finance leases of vehicles like garbage trucks.

The company has compound growth rates of 12% and 20% for revenues and earnings respectively. The added risk here is that they make money from medium term contracts with public sector bodies, so these contracts may not be renewed if competition heats up. But the good part of that is prices can be increased when contracts are re-negotiated. Worker wages are a worry for some investors as they have been increasing.

Any regular company growing earnings at 20% a year would be worth around a P/E of 30. Even a conservative growth estimate of 12% tapering off is worth a P/E of 19. So why are these shares cheap? Well, almost 70% of the company is owned by a couple of the board members through another company or trust. That puts the rest of us in a pretty powerless position. But is that really worth such a haircut? Maybe a 10-20% discount.

Including this discount then, I’d value the shares at a P/E range of 17 to 25, or S$1.59 to S$2.25. Not that I think they’ll ever trade that high, so I’m content to hold this for the long term unless something material changes with the company or its governance.

Disclosure: Author is long ESH:SP and has no interests in SAGCV

Founder of Investing Sidekick. Works as a research analyst and is an avid value investor, always searching for undervalued shares.

Leave a Reply

Your email address will not be published. Required fields are marked *