May 4, 2018

Glennon likes to invest long term. This is the best way to sustain good, consistent performance over time. Problem is short term bumps along the road can appear, often without rhyme nor reason, which makes for nervous times as an investor … what have we missed, have we miscalculated? Nevertheless, it’s important to stick to our guns where we are confident we have done our research well.

One of our largest holdings, heavy equipment rental group Emeco (EHL.ASX), is a recent case in point. The stock peaked at 31c mid-March this year (at which point Glennon had doubled its money since purchasing early in the company’s recovery cycle).

For some un-prompted reason the shares then fell 16% to 26c by mid April. That’s a significant enough fall to cause some serious head scratching.

Since then there have been a string of announcements that have restored confidence and the stock has recovered some of the lost ground. First it released a 3Q performance update in mid-April that confirmed operations...

April 27, 2018

The shift from explorer to producer amongst resource stocks is often a time of confusion. Frequently there is more excitement priced into a stock when it is looking for resource than there is when it is producing it and generating cashflows. The hype associated with potential discoveries of the latest hyped commodity tends to be ambivalent when it comes to extracting it from the ground.

Glennon has had a holding in Otto Energy (OEL.ASX) for some time now and have done well out of it.  We bought it on the back of its drilling program in the Gulf of Mexico with 50/50 partner Byron Energy (BYE.ASX) – in fact we switched out of Byron into Otto when the latter’s share price failed to match the momentum of the former. We bought more when it was clear production was imminent.

Byron is the operator of the SM (South Marsh) 71 platform and does have a superior portfolio of potential farm-in agreements but with a market capitalisation nearly three times that of Otto (and with their cashflow prospec...

April 20, 2018

For those of you who didn’t have time to read the Glaucus research report on Blue Sky.  We have had a look at it.  While I wasn’t swept away with the quality or detail of the research it has had a marked impact on the share price as you can see from the chart below.  We never held any shares in Blue Sky for our funds as its not the type of business that we would generally own.  Though it did make me think can I pick up a bargain while the share price is depressed.  It is in the strategic timing of buying and strategic timing of selling where the greatest returns can often be made.  We like to think that we are adept at looking though the noise.

Glaucas is not a white night saving the Australian investing public.  They very clearly state in their report on Blue Sky that they “stand to realize significant gains in the event that the price of such instrument declines”. They achieved their objective! 

So does the current share price create opportunity?  If...

April 13, 2018

The are several definitions of stocks being ‘on the nose’. Some will never turn out OK, some will be fine as fundamentals come through and some, unfortunately, will go through mental torture with no clear path to recovery or ruin thanks to the great art of public perception.

Blue Sky Limited (ASX:BLA) is in the latter camp. We don’t own the stock but as soon as the Glaucus reports were released (US hedge fund who decided Blue Sky was not valuing its underlying investments correctly) we knew the intense elevation of scrutiny would burden the stock for some time to come, regardless if it is right or wrong. Blue Sky has had a remarkable run since listing which means the market gave it the benefit of doubt. A company whose revenue relies on uplifts in valuation of it investee companies is going to find ways to put a positive spin on its investments which in-turn endorses the management reputation. Each positive result effectively gives investors less reason to question the fundamentals and...

March 23, 2018

Both institutional and individual investors have been doing their dough on Myer for more than 10 years now. Why? It’s a ‘value’ addiction the market just can’t shake.

Myer’s share price has now fallen for nearly 8.5 years straight. There has been occasional respite each time the company presented a new strategy, but generally it has been false hope. The stock has lost 91% of its value since listing.

It is and has been a classic value trap.

The traditional bricks-and-mortar retail industry is in structural decline, same as newspapers and television, caused by the massive disruption from online and mobile.

Department stores are the poster child for this decline. They were invented to showcase the wares of the world in one place at a time when travel was a rare treat and people marvelled at exotica from afar. Pretty sure this is not an issue today … one click and it’s in front of you, no need heading to the mall. Even if you do end up there pretty much everything on sale inside Myer is also a...

March 19, 2018

Companies make mistakes. It often accompanies major change within an organisation, often involving management replacement or perhaps a new strategy to deflect from the maturation of a key business. What is for certain is that change is an important investment catalyst.

We saw a couple of examples this week of companies which have corrected errors – one we are happy to own and one where the jury is still out.

Silver Chef Limited (ASX:SIV)

Glennon Capital made great returns investing in Silver Chef a couple of years ago.  The company made its name from the financing of ovens, fridges and other equipment for the Australian hospitality sector – restaurants, cafes, clubs and hotels. It found a good niche and dominated that market.

Then it moved into construction equipment finance, at around the same time the founding CEO gave up his day-to-day duties, handing over to a new team. Two investment red flags.

Sure enough construction financing has proven a vastly different (and poor) experience...

January 15, 2018

One of the great things about the Christmas and new year break is being able to relax away from the market and reflect on the year gone by. Bitcoin was the hot topic for 2017, particularly in the second half.

Let me be clear. I'm bored of bitcoin already.

I'm bored with the influx of LinkedIn requests I'm getting from cryptocurrency traders I have never met and I'm bored of explaining how useless all cryptocurrencies are and how you're better to actually buy real businesses that make real profits.

But 2017 felt like the year that everyone I knew was asking me about bitcoin.

I went for a walk with a friend who had invested $20,000 six weeks ago into a basket of different currencies and that balance six weeks later was close to $60,000.

A cabbie was telling me that he was a cryptocurrency trader and that driving the cab was no longer his full-time job. My brother-in-law had told me that his builder had borrowed $400,000 against his house to buy bitcoin, an old analyst of mine owned some type...

November 2, 2017

I recently wrote about thinking like an owner, including the way it makes you look closely at board decisions. Today I wanted to discuss how going into investments as though you are the owner of the business can give you a good indication of the effectiveness of the board as well as the amount and price of capital that is issued.

By looking at the average price of shares that are issued you can get a good indication of how much of your company is being given away. For instance, your shares might be trading at $2.00, but the average price of shares issued during the year was $1.50. Effectively, the company is issuing shares at a 25% discount, so you are giving away part of your company to those new shareholders.

This all comes down to a question of value. Perhaps those new shareholders are adding value to the company, which ideally would produce a better outcome for you. If the shares were trading at $1.00 the year before then issuing shares at $1.50 might be a reasonable outcome. On the...

November 2, 2017

Glennon recently attended a two-day China conference where we listened to representatives from Austrade, the Chinese answer to Amazon, Alibaba, and a bunch of local companies who are doing their best to succeed in China.

There is no doubt the potential is enormous. If the economy grows at the expected 6% it is like doubling the economies of NSW and Victorian economies every year. As Chinese infrastructure investment is slowing the consumer is taking over – private consumption expected to move from 41% of GDP to 51%. The number of Chinese nationals earning more than US$32,000 a year, which is a sweet spot for Australian products, will grow from 25m to 109m by 2021. This will put the squeeze on China’s already scarce land and water resources and drive the need for imported goods.

The key Australian products include food – particularly beef, dairy (including the much celebrated infant formula), seafood, cereals, cereal snacks and eventually fruit – plus wool, lamb skins (shoe leather), anim...

October 27, 2017

So you have made an investment in a company, you think it’s a good investment and you’re optimistic about having bought a great business at an attractive price. The business is either cheap considering it’s what you currently know about the company, or cheap when you take into account what you think the business could achieve. You’ve ticked all the boxes investing in a company – so what next?

It’s at this point that you need to start to think differently about your investment.  Rather than leaving your investment to make money, and passively standing on the sidelines, you need to start to consider yourself an owner of the business. You should be treating management like they are your business partners, looking at the decisions they make and assessing the impact of those decisions on the business for the next 5 – 10 years.

You may have heard me discuss the importance of good management, and there is a good reason why. When you invest alongside management who are also owners of the bu...

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