Sample Ideas

〉 Nippon Telegraph & Telephone – Equity

»  Cheap Thrills

After stalking the company for a few months, I believe that the case should have come earlier but as I see now, it is -still – trading cheap or close to fair value. An outstanding cashflow generator with excellent balance sheet, the company has a diversified portfolio and a long history.Debt has been gradually falling over the years, whereas M&A Activity is planned especially for international and data communications segment. If you sum the cash on balance sheet and net PPE and divide by the shares outstanding, you get the current market cap. While KDDI is far better in profitability, it trades expensive than Nippon Telegraph & Telephone which is cheaper on free cashflows.

〉 Crown Crafts Inc – Equity

»  Toddlers to Win

A good company that makes easy (toddler) products while trading at an attractive price. Stable cashflows from the last five years do give me a strong conviction of good future free cash generation. Comparing the current market valuation of $ 76m, buying the entire enterprise at current valuation will enable you to get the ask back in ~ 11 years when measured purely on free cashflow. The judgement is again on the sustainability of free cashflows which in my view are reasonably sustainable. The debt is low (credit limit) to non-existent which justifies my conviction that management is prudent and strong free cashflow generation is their priority. Digging further, with $11 m in net cash, essentially the equity is valued at $ 65m which in my view is cheap for such an enterprise. A stable, capex light little researched and overlooked company, Crown Crafts Inc is a good company to add in the portfolio for the long run.

〉 Secure Trust Bank PLC – Equity

»  Mr Market Miscalculates

Secure Trust Bank is way cheap when considering its growth potential, strength of its balance sheet – zero debt- and the low risk appetite philosophy that management operates. After the sale of unsecured Every Day loans portfolio -which did command significant risks but also great profitability-, the bank sits with a large cash pile of ~ £140 m whereas the market demands £400 m for the entire company. So, if I buy the shop for £400m and get a register along with £140m cash, actual market valuation of earnings potential stands at £260 m.  Judgement is out whether going concern value of business is greater than £260 m which I believe it is. A good enterprising bank for a diversified portfolio.

〉 Virgin Money 7.875% At1 Perpetual – Fixed Income

»  Even the bad times are good

A U.K based retail only bank, Virgin Money Holdings has increased additional tier-1 bond issuances as the recent bonds are trading at 95.53. Not exactly dirt cheap, the coupon seems very attractive, underlying business segments are posting growth and in times of rising interest rates, my belief is that the at1 bonds of “safe issuers” will offer cool returns in the fixed income market. The bond is complex, riddled with regulatory ifs and buts and thats exactly the reason for its attraction where few who really understand (discounting myself out) them end up allocating capital to them efficiently.

 Bucher Industries AG – Equity

»  A good business at a fair price

Incorported in Switzerland, Bucher Industries is going through a rough patch where almost all reporting segments have had revenues in steep decline. Essentially an emerging conglomerate, debt for the group is low, cashflow is ample and products – especially the agricultural segment – is still a leader among competitors.

〉 PDL Biopharma 4% Due 2018 – Fixed Income

»  Fixed return prevails over equity

Essentially a 10 person led healthcare investment company, PDL biopharma makes money out of royalties and high interest rates lending to new healthcare ventures. My estimations give a good upside to equity but I believe it is a horse too rough to ride. The business model is vulnerable to steep falls – visible through significant Queen royalty expires – therefore convincing me that the notes due in February 2018 at 4% coupon offer a much safer respectable return. Trading at 94.50 cents to a dollar, the notes do make a good investment.

〉 Osaka Steel Co– Equity

»  Specialized steel with a strong balance sheet.

Even with falling revenues, operating income increased showing management resilience. A good enterprising firm that is being overlooked by the market, Osaka Steel is relatively cheap on free cashflow basis and greatly undervalued considering its balance sheet strength. Risks include large holdings from the parent which essentially limit the free float or daily turnover available for investors.