Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
I think viewing this as an FX company is the basic mistake. It makes more sense to view it as Fintech and it is sometimes described as such. A big part of the company's success is it's technology platform and the ASS could well drive growth going forward. Personally I'd compare it more to Wise than to, say, Argentex. But then the incredible fundamentals come into play. Wise made a PBT of 145m Vs 116m for Alpha. But Wise has a market cap of 10 billion. Wise may perhaps have better growth prospects but I also think it may face more competition going forward. But yes the combination of amazing fundamentals + huge growth prospects + interest rate hedge + great management + bargain basement price makes this by far and away the best investment I can see right now. It's 9% if my portfolio but I'm still going to add as I struggle to identify any major downside risk, all things considered.
There's been a lot of focus in the chat about the treasury income and how to value Alpha. But it's worth thinking about it's growth prospects too. The land and expand strategy has great potential. As it is, London generates £35 mil of the FX revenue. With offices in several European countries, including Germany now, plus Sydney and Toronto, the hope is that these can replicate London's success - bearing in mind they still consider London in an early growth phase. They also reference using the Madrid market as a base for other Spanish-speaking markets, which could bring offices in south America into play. Longer term, there's no reason they couldn't expand into Asia, Africa, and the US. They've made a few mistakes (Toronto) but it's a learning experience and if most of these offices come good then there's probably scope for increasing revenue by 10-20x. If you think about where this company could be in 10 years time by doing little other than repeating a winning formula, it's really very exciting.
A few points:
1. It is indeed amazing that for FY2025 (hardly the distant future) net cash could equal half market cap. I wonder by when it would be 100%? End FY2028?
2. Divi increases are modest and the buyback is limited to 20m. I wonder what they'll do with the war chest. My suspicion is they're working on very ambitious expansion plans which will be announced in May with the move to the main market. Could be exciting. Personally I'd like to see them get a licence for the US (and then list on the Nasdaq with a market cap of 10 billion).
3. I'm not sure it matters how you value it. Whichever way you slice it it's a bargain. But yes it makes no sense to do a standard P/E valuation on a company that will soon have have 50% of it's market cap in cash. I also think to value the net treasury income at 3x is far too low, especially given it's a stream that should increase as it grows and in the meantime is so rapidly shrinking the market cap minus cash equation.
Just wondering but is there any rational explanation for this fall? The results are too complicated for me to travel through in full but the headlines all seem very positive. It looks to me like the fall is being driven by sentiment, technical factors, or perhaps forced selling. Personally my only concern here is geopolitical. That aside I think this is a screaming buy. I also take comfort that the initial market reaction was positive. It suggests to me that the fall in the sp has not been driven by the results themselves but by the other factors I mentioned. One final point - it's worth noting that the COVID low was 7.10 on March 18th, almost exactly four years ago. That could provide some support. Beyond that the graph suggests a potential fall down to the 5 quid level. But given the numbers, I can't see why that would happen. Interesting also that most brokers have price targets around the 15 quid mark. Sure, you should take those with a pinch of salt but it's worth noting that this has to be the FTSE 100 share with the biggest divergence between broker targets and SP. Suggests to me again that this really is a bargain.
Interesting that it is up on these results. I don't see anything very different from the previous trading update. I think it's partly just relief there weren't any nasty surprises but also the imminent main market move. Short-term, I think the move holds big potential for this to re-rate to an ATH. Glad I added yesterday! This is one of those companies that merits a bit of faith.
Personally I don't mind then reporting the interest income as they do. If it keeps the sp lower then there are three advantages: 1. I can keep on buying shares in a great company very cheaply; 2. They can reduce the float cheaply through buybacks; 3. I can look forward to higher dividends. My concern is more along the lines of the doubts Shearclass raised. Are clients not going to look for better deals elsewhere? Are they going to have to start paying back some of the interest? Could regulators get involved a bit like how investing platforms may get penalised for double dipping? Not saying any of these things are happen but I'm not sure we can count on the other interest income lasting forever, which is another reason it might be better not to recognize it. I do think they should accelerate the buyback though. They bought under 5000 yesterday.
EPS is now forecast to fall to 85-90p down from previous forecasts of 107p. It's a big down grade but it still leaves this on a forward p/e of 4.2-4.5. That's too cheap, especially given the monster divi and buybacks. I think this will head back up.
I looked at these results before the market opened and thought we might see a 20% rise. We knew about the adverse EIR adjustment already and apart from that they look very strong with EPS excluding the EIR rising almost 10% and a similar rise in the loan book. I can't quite believe the market reaction. Plus the divi is maintained and there's a buyback. Have I missed something?
Another piece of the puzzle, I think, are the ongoing charges. These are 1.72% which is very high. And it's 1.72% of the NAV not the SP. So that's actually 2.3% of the SP when you factor in the huge discount. So the more the SP underperforms the NAV the more expensive it is in terms of charges. So maybe that's also putting people off, apart from the obvious fact that this trust is far too small.
Just wanted to add that on every timeframe from 1m to 5y the SP has underperformed the benchmark. Quite extraordinary that the NAV could outperform on every timeframe and the SP underperform on every timeframe!
Another extraordinary fact about this trust is that the NAV has now outperformed it's benchmark over every single time frame, 1m, 3m, 6m, 1y, 3y, and 5y. Yet because of the huge discount it's massively underperformed it's benchmark. You've got to feel for the fund managers on this one. To my mind, it's yet more proof of how broken the UK stock market is for anything mid or small cap.
I just looked back at some historic discounts from around a year ago. On March 16 last year the NAV was 252p and the SP 230p. On March 8 this year the NAV was 257p and the SP 192p. This 26% discount on quality listed companies most of whose share prices are rising is getting silly. It's getting to the point where SP and NAV are not even correlated. I'm not a stock market historian but surely if this gets much worse something has to change. If no one will buy regardless of the value of the assets then surely at some point you have to admit the trust has failed, sell the assets and return cash to shareholders... That's not why I'm buying but it needs to be on the table as an option.
On Jan 22 the NAV was 240 and the sp 204. One month later, on Feb 23 the NAV is 255 and the sp 193. That's pretty ridiculous. In my experience NAV discrepancies in quoted companies tend to max out at around 23% so I reckon this is the optimal time to buy.
This now has probably the silliest discount of all the trusts I follow. It stands at 23%. Sure, renewable infrastructure trusts have bigger discounts but JGC is invested in high quality quoted companies like Schneider Electric and Prysmian. Recently the NAV and SP have been heading in opposite directions - the more the trust is worth the less people are willing to pay for it. In the meantime the managers are sensibly buying back their own shares. Can't help feel this has a huge safety margin. I'm buying quite heavily but looks like I'm the only one!
I like the idea of a rolling buyback using a high percentage of the interest income. Hard to see how the share price could go anywhere but up with that in place given the level of that income and, as you say, the possibility of it growing further. One thing I like about ALPH is that on organic growth rather than buy and build (sure they bought coinbase but it hardly cost anything). As long as that's the case, it's better to buy shares than sit on cash. That said, I'm happy with current cash levels as it provides a safety cushion and the interest alone on that cash should more or less pay the dividend.
It's quite a small jump for a possible takeover. Does that mean the market thinks it's unlikely or that the premium would be low? And what, realistically, would Mondi need to bid to get it over the line? Under 3.50 would surely be rejected, but 5 or even 4.50 seems like wishful thinking. So I'd suggest somewhere between 3.75 and 4.25, i.e. around about £4. Personally I'd be ok with that given depressing recent sp performance, though hardly delighted...
@Shearclass. Certainly in the short term we totally nailed this one. The entry point at £15 was just too good to be true and anyone buying then (I got my timing slightly wrong, getting in at an average of around £16) is already up nearly 20%. Nice to have a board with only sensible constructive posts.