Portfolio sells ($PTL:AU, $SFT:GR)

An update of my portfolio. I’ve sold a couple of positions in my portfolio in the last week.

Pental (PTL:AU)

The first is in Pental, which posted a poor outlook a while ago and I’ve been in two minds whether to continue to hold. On the one hand, I don’t think the company faces catastrophe and should continue to make decent profits. But my original thesis valued the company based on growth in revenues and profits, and I don’t really see where this is going to come from now. The brands it holds don’t seem to command the same margins and returns on equity that things like Colgate command for example (10% operating margin vs 23% for example).

I don’t necessarily think it’s a bad investment at the current level but I think given my original thesis was wrong I need to move on. I’ve been too slow to do this in the past with other investments and it has cost me as the company’s results continue to deteriorate.

Despite the share price falling 30% from its high in the last year, I’ve made 41% on the investment thanks in most part to the generous dividends. This works out at a CAGR of 10% per year over my holding period. Certainly not a disaster and just goes to show why buying with a margin of safety is important. If I’d bought it originally for what I thought it was worth I’d have lost money.

Softbank (SFT:GR)

The second position I sold is Softbank. Whilst this has been on the face of it a successful investment (up 56%, or 19% CAGR per year), I can’t help but grit my teeth. In my original thesis, I outlined why I thought it was worth around double its then share price due to a sum of various parts. I also noted that in truth, my main interest was in holding Alibaba (BABA) and this was a way to get a holding at a discount (Softbank owns 30% of it). How did that work out? Well, at the time, BABA shares were $78 and are now $190, or up 140%. If I had just invested in the company directly, I’d be a lot more satisfied and would continue to hold. C’est la vie.

So you may wonder why I’m not still holding, as Softbank is at an even greater discount to the sum of its parts now. Well, I’ve simply lost patience with the company and am a little disturbed by its recent investment in Uber, which as far as I know makes no money yet is valued at $50bn by Softbank’s deal. Then there’s Softbank’s $100bn Vision Fund. At such a large scale, I don’t see how they can do anything but invest in tech companies that already command high valuations (e.g. Uber).

Also I had not given enough consideration to the liquidity of Softbank’s BABA shares, which aren’t in the liquid ADRs listed in the US, they are instead in much more difficult to trade shares in the Cayman Islands holding company. It has tried to sell some and has had to do it in a rather roundabout way. In the past I have given far too little consideration to liquidity but this is a real thing that warrants a discount in my opinion.

I’m reconsidering a direct investment in BABA but the valuation is putting me off. I think listed tech companies in the US are getting wildly overvalued, yet BABA is making strong cash flows, growing at 50%+ per year, and is on a forward P/E of 37. It’s just a bit too pricey for my liking so I’m going to wait on the sidelines and hope an opportunity comes up.

Disclosure: Author has no position in PTL, SFT, BABA

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

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